Earning a monthly income from savings is one of the priorities for the retired or semi-retired individuals. For generating a monthly income, experts recommend a mix of different investments such as bank fixed deposits (FDs), mutual funds, Senior Citizen Savings Scheme, Pradhan Mantri Vaya Vandana Yojana (PMVVY) and Post Office Monthly Savings Scheme, depending on the risk appetite. Besides, there are limits in some instruments like Senior Citizen Savings Scheme on the amount that can be invested.
Bank Fixed Deposits or Bank FDs
When it comes to earning a regular or monthly income, bank fixed deposits or FDs have been one of the most popular investment options. Besides the safety factor, a guaranteed interest income is one of the big pluses why investors opt for bank deposits. In case of bank deposits, the interest income is simply added to the investors' income and taxed according to their respective tax slabs. Banks deduct TDS at 10 per cent on the interest earned in case the interest income for a year exceeds Rs 10,000. Some banks offer fixed deposits with maturity up to 10 years.
Getting Regular Income From Mutual Fund Investments
Some people chose the dividend option in mutual funds to earn regular income. Many debt funds have a monthly dividend option. Some balanced funds also offer monthly dividend option. But remember, dividends are not guaranteed. It is distributed from gains made by the scheme, which is market linked, or in other words, determined by fund performance and market movements.
When it comes to earning a regular monthly income, SWP or systematic withdrawal plan scores over the dividend option. Under the SWP or systematic withdrawal plan, you need to specify a certain fixed amount as a monthly payout. Then on a designated date, units amounting to that amount would be redeemed. For example, an investor invests 15 lakh and gives an instruction to the fund house that Rs. 15,000 be paid on the 1st of every month.
Investments in debt funds are considered long term only if they are held for more than three years. The long-term capital gain on debt funds is taxed at the rate of 20 per cent. However, investors get the benefit of indexation on their original investment. This means that the original investment is adjusted for the price of inflation and taxed accordingly. Since the original cost of investment goes up after factoring in inflation, long term capital gains tax comes to negligible levels. But if debt mutual fund investments are redeemed before three years, the short-term gains are taxed according to the investor's tax slab. SWP in debt funds are tax efficient than fixed deposits even in the first three years of investment. Investors also need to keep in mind the exit load of the scheme. (Read more about mutual fund systematic withdrawal plan)
Post Office Monthly Income Scheme or Post Office MIS
Under the Post Office Monthly Income Scheme (MIS), the interest is paid on a monthly basis commencing from the date of deposit. A person who wants to open a Post Office Monthly Income Scheme account now will get an interest rate of 7.3 per cent per annum, payable monthly. A depositor can operate more than one account under the Post Office Monthly Income Scheme (POMIS), subject to the ceiling of maximum amount, which may be invested in single or joint account. The maximum limit is cumulative Rs. 4.5 lakh in single accounts and Rs. 9 lakh in joint accounts. The maturity period of Post Office Monthly Income Scheme is five years.
Pradhan Mantri Vaya Vandana Yojana (PMVVY) From LIC
The government's 8 per cent pension scheme for senior citizens, called Pradhan Mantri Vaya Vandana Yojana (PMVVY), was launched in May 2017. Life Insurance Corporation or LIC operates this scheme. Senior citizens are guaranteed 8 per cent interest rate for 10 years under this scheme. Under PMVVY, pension is payable as per the frequency chosen by the subscriber - monthly/quarterly/half-yearly/yearly - during the policy tenure of 10 years. To earn pension in the monthly mode, the minimum amount investment amount is Rs. 1.5 lakh which will earn a pension of Rs. 1,000 per month. The maximum investment allowed is Rs.7.5 lakh which will earn Rs 5,000 pension per month.
There is a minimum and maximum limit for investment in the Pradhan Mantri Vaya Vandana Yojana scheme. The amount varies according to the pension payment mode chosen. For example, under the yearly pension mode, the minimum amount to be invested in the scheme is Rs. 1,44,578 and the maximum at Rs. 7,22,892. In the monthly mode, the minimum amount to be invested is Rs. 1,50,000 and the maximum at Rs. 7,50,000.
Senior Citizen Savings Scheme
An individual of the age of 60 years or more may open the Senior Citizen Savings Scheme Account, according to India Post website. An individual of the age of 55 years or more but less than 60 years who has retired on superannuation or under VRS can also open account subject to the condition that the account is opened within one month of receipt of retirement benefits and amount should not exceed the amount of retirement benefits, India Post website adds. Maturity period of Senior Citizen Savings Scheme is five years. A depositor may operate more than one account in individual capacity or jointly with spouse (husband/wife). Investment under this scheme qualifies for the benefit of Section 80C of the Income Tax Act. TDS is deducted at source on interest if the interest amount is more than Rs 10,000 per annum. Currently, Senior Citizen Savings Scheme offers an interest rate of 8.3 per cent. (Read more about Senior Citizen Savings Scheme)