Five monthly income strategies for you: From FDs to Post Office MIS to annuity to MF SWP and dividend

The annuity or pension plans offered by insurance companies provide the option of getting monthly pension for lifetime.

Having regular monthly income – along with salary or after retirement – makes your life comfortable and allows you to make a budget for your regular expenses as well for occasional extra expenses for enjoyment.

Let’s see what options you have to get regular monthly income and their features.

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1. Fixed Deposits (FDs)

Fixed deposits are one of the most popular choices in India. Whenever the question of where to invest comes to mind, most people think about the FDs because they are easy to get from the banks that have created immense trust in the mind of the account holders. However, you can’t have monthly interest income from FDs, because interests credited to FD accounts quarterly. So, to get monthly income, you have to improvise your investment pattern and have to invest a fixed amount every month for a tenure you pre-fix, say in yearly FDs. For the first 12 months, there will be capital outgo, but after that you will start getting maturity amounts, out of which the interest will remain with you and the principal amount will be reinvested. So, by this way, you will get the interest monthly without making any additional capital investments.

For example, if you put Rs 1 lakh every month in an 1-year bank FD giving 7 per cent per annum interest compounding quarterly, starting from 13th month, you will get Rs 1,07,185.90 every month. Out of the maturity amount, Rs 1 lakh will be reinvested and you will get interest of Rs 7,186 every month as disposable income, provided the rate of interest continues to be the same.

There are more disadvantages in this plan than advantages, because you have to improvise the invest pattern and have to put money in FD every month to get monthly income and any fluctuation in the interest rate may put your budget off the track.

However, for senior citizens the 10-year investment plan of Pradhan Mantri Vaya Yojana will be a better option, which gives monthly interest along with quarterly, half-yearly and yearly options. Moreover the interest rate is 8.3 per cent per annum, which is equivalent to 8 per cent per month. So, on a maximum investment of Rs 15 lakh, a senior citizen may get Rs 10,000 monthly for 10 years.

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2. Monthly Income Schemes (MIS)

The Monthly Income Scheme is available in Post Offices, which is currently providing annual interest rate of 7.3 and the interest is payable monthly. However, the maximum limit of investment in MIS is Rs 4.5 lakh in a single account and Rs 9 lakh in a joint account. So, a person investing jointly Rs 9 lakh may get a monthly interest of around Rs 5,300.

An MIS account may be opened even for a 10-year old minor, however the limit on investment limits the monthly income.

Some debt mutual funds also have MIS schemes, which also provide monthly returns, but are subject to market risks.

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3. Insurance Annuity Plans

The annuity or pension plans offered by insurance companies provide the option of getting monthly pension for lifetime. Such plans have options of immediate annuity (like LIC’s Jeevan Akshay and Jeevan Shanti) or deferred annuity in which one may opt for getting pension after certain time period after paying the lump sum premium (like Jeevan Shanti).

The advantage is that apart from senior citizens, any person of above 30 years of age may take these plans. The plans also has various options to get pension for self, spouse and also option for the nominee to get back the purchase price. The amount of monthly pension depends on the choices as well as the age of the annuitant.

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4. Mutual Fund Dividend Payouts

There are many MF schemes of various AMCs, under both debt and equity categories, that give monthly divided payouts. The advantage is that the dividends earned up to Rs 10 lakh per financial year are tax free in the hands of the investors. However, there is no guarantee of monthly payout as dividends are paid out of the gains. In case of steep fall in NAV, the dividend payout may be suspended till the value recovers to prevent depletion of the capital invested.

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5. Mutual Fund Systematic Withdrawal Plans

After keep on investing and remained invested for several years, an investor may opt to withdraw a fixed amount periodically out of the accumulated fund value. There periodical pullout or the systematic withdrawal plan may be set on a particular date every month, making it source of monthly income. There will be no problem when NAVs are high as lesser units would be redeemed, but in case of fall in NAV, larger number of units would be redeemed to meet the outgo of fixed amount, which may put the fund value under pressure.

Source: The Financial Express

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