Updated on 4 Feb 2021.
You always need cash flow to pay monthly bills that are taken care of by your job or business. But what if you are getting older and planning to retire. You would still need a source of income to maintain the cash flow for your daily needs.
I am going to share 7 best monthly income schemes to invest in India that would provide a regular money flow against the investment.
Best Monthly Income Schemes to Invest in India 2021
#1. Systematic Withdrawal Plan
Systematic Withdrawal Plan (SWP) allows you to withdraw money in installments from your mutual fund corpus rather than getting lumpsum money. It is the opposite of the Systematic Investment Plan (SIP) where you invest in installments.
You can customize your cash flow as per your requirement. You get the option to withdraw capital gains you earned on your investments or you can fix a specific amount.
It has a double benefit for you, you will get regular cash flow and your principal amount will keep on generating interest.
For example, you have invested Rs.10 lakhs in mutual funds either lumpsum or via a SIP and you are getting a 10% to 12% return per annum. After a certain period of time when you need regular money you can go for SWP and fix a monthly income let’s say Rs.10,000 per month. now you will get Rs. 10,000 per month and you will also earn a return on the rest of the invested amount.
#2. Bank Fixed Deposits
Monthly Interest Payout Fixed Deposits is one of the risk-free ways of earning passive monthly income. However, the interest is paid on the discounted rate which is below the normal fixed deposit rates.
For example, (hypothetical situation) a monthly interest FD would fetch you 0.50% per month i.e. 6% per annum against 7.5% per annum if FD is put for the whole year. Interest rate is directly related to the tenure of the fixed deposit, higher the tenure thicker the interest rate. The monthly interest is subject to TDS if it exceeds the threshold limit of Rs.10,000 per annum.
Not all banks offer a monthly payout of interest, only a few banks provide monthly income scheme including ICICI, Bank of Baroda, Union Bank of India, Punjab National Bank, Kotak Mahindra Bank, Yes Bank, and Axis Bank.
#3. Monthly Income Plans (MIP)
Monthly Income Plans refer to open-ended debt oriented mutual funds that invest around 75% to 80% into debt instruments like high rated corporate bonds, or debentures and remaining 20% to 25% in equity and cash.
The returns a.k.a dividends from MIP is not limited to monthly payout, however, you can also opt for quarterly, half-yearly or yearly payout plans.
The dividend declared is not taxable in the hands of investors, the Asset Management Company is liable to pay the tax on the dividend declared. However, in the 2020-21 Budget, the government has made dividends taxable in the hands of investors, as per the slab rate (will be applicable in the next financial year).
For example, if the dividend of Rs. 5 is declared than 85 paise (16.995%) is paid by AMC as Dividend Distribution Tax (DDT) and remaining Rs.4.15 is paid out as dividend but once the dividend is paid out, NAV of the mutual fund unit is adjusted according to it i.e. get down by Rs.5. However, Capital Gains from the selling of mutual fund units attract tax.
Please note that monthly income plans may or may not provide guaranteed monthly income. Sometimes due to the bad performance of the Fund, the dividend is not declared at all, because, companies pay out dividends from the profits and not from the capital.
#4. Post Office Monthly Income Scheme (POMIS)
You can go for this risk-free easy monthly return scheme. Post Office Monthly Income Scheme is a six-year small savings scheme offered by Indian Post Offices. You can open account with a minimum investment of Rs.1,500 for a single or joint account. The upper cap of investment in POMIS is Rs.4.50 lakh for an individual account and Rs.9 lakh for joint accounts (4.50 lakh each account holder).
Currently, POMIS gives a guaranteed return of 6.60% per annum (fixed) which is paid out monthly and is not liable for TDS.
For example, Rs. 9 lakhs (in a joint account) invested in POMIS will fetch a monthly income of approx Rs. 4,950. The investor is required to add interest income into his regular income and can pay tax accordingly.
You can also leave the deposited amount for two more years after maturity to earn returns similar to the savings bank account.
Premature closure of account is allowed but only after one year and that too with a penalty of 2% of the deposit amount is charged if account is closed between 1 to 3 years and 1% of the deposit amount if the account is closed beyond 3 years. Also, the prematurely closed account is not entitled to get maturity bonus.
#5. Pension Plans or Annuity Plans
Pension Plans or Annuity Plans are designed to cater to your retirement life. There are two types of pension plans i.e. Deferred Plans and Immediate Plans.
Deferred Pension plan
Deferred Pension plan consists of two phases-
- Accumulation phase where your premium gets accumulated over the period and invested in n securities approved by the Insurance Regulatory and Development Authority (IRDA ).
- Distribution phase where you start getting a regular return from your investment kitty. The vesting age or distribution phase usually starts at the age of 50 years and you can withdraw up to 33% of the accumulated amount at once and the rest is paid in the form of pension. National Pension Scheme by Government of India is one such pension plan which offers an additional tax benefit of Rs.50,000 u/s 80C.
Immediate pension plan
Immediate pension plan works like a bank fixed deposit where you invest lump-sum amount at once and start getting pension immediately. The frequency of pension could be monthly, quarterly, half-yearly and yearly. LIC Jeevan Akshay VI is an example of an immediate pension plan.
#6. Reverse Mortgage Loan
Reverse Mortgage Loan means redeeming your real estate property over the period. Under Reverse Mortgage you can start a regular monthly income by putting your house or any other house property with the bank and at the end of tenure banks get possession of the house.
You can get a maximum of 60% of the value depending on your age group for tenure up to 20 years. The property is required to be valued in every 5 years. After that bank gets the authority to sell the house and realize the loan amount if any surplus remains from the sale proceeds than the same shall be given to the legal heirs.
Only senior citizen i.e. an individual aged 60 years or above can Reverse Mortgage Loan with a residential house property having a borrower’s ownership of the concerned property. The reverse mortgage loan can be availed lump-sum or as monthly income.
Here are the details of the Loan to Value Ratio as per the age group-
|Age Group||Loan to Value Ratio|
|60 to 70 years||45% of the Value of the Property|
|71 to 75 years||50% of the Value of the Property|
|76 to 80 years||55% of the Value of the Property|
|Above 80 years||60% of the Value of the Property|
#7. Rental Income
In case you have some serious idle cash with you than you can invest in real estate to get an additional monthly income in terms of rent or lease. The rental income depends totally on the location or type of the property you buy however, a well-maintained property tends to get maximum return.
There is a dual benefit of investing in real estate i.e. first of all, you get a regular monthly income and secondly, over the longer time period, real-estate tends to give multifold returns.
Which investment option is your favorite for your monthly income purpose, do let me know in the comments.