Earning monthly income from Rs.25 Lac lump sum investment is ideal for retirees or homemakers who need a regular income stream to sustain a financially independent lifestyle. In addition, individuals with disposable income looking to augment their monthly income can explore various investment avenues available in the market. However, your risk profile is critical for investing in a particular scheme. While banks and post offices are ideal for the risk-averse, mutual funds, corporate deposits, besides others prove lucrative for individuals wishing to maximize returns. So, let us look closely at various aspects before investing.Read more
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The primary objective of the investment is earning returns on it. Therefore, wherever you invest, the prime criterion that clinches the issue is what you will likely earn over the chosen tenor. However, monthly income serves an altogether different objective than the long-term perspective. Therefore, the factors to consider for monthly income investments are:
Banks and post offices are the safest investment organizations in the Indian context. It is not only their penetration across the country, but your deposits enjoy DICGC cover besides functioning under strict RBI regulation.
Investors with a low-risk profile look for options where the returns are guaranteed rather than depend on market volatility.
While investing your Rs.25 Lac disposable income, you must prudently choose the tenor and the scheme. The monthly income stream should continue for the varying tenor and should offer a premature withdrawal facility for liquidity.
Investors also look at the tax liabilities arising from the monthly income on Rs.25 Lac investment. For example, senior citizens earn an exemption of Rs.50000 annually on interest income. On the other hand, Mutual Fund returns are liable for taxation under capital gains, as per norms.
Having comprehended the factors influencing the decision to invest Rs.25 Lac and earn monthly returns, let us now explore the schemes open to you.
Every bank offers a monthly income scheme for periods ranging from 1 year to 10 years with varying interest rates. Since banks apply compounded interest quarterly, the monthly interest paid is discounted. However, you enjoy various upsides like flexible tenors, joint account operation, nominee facility, loans, and above all, liquidity through premature closure without penalty.
Like the bank, corporate deposits offer a higher interest rate that translates to higher monthly income. However, you cope with the possible higher risk to your investments than banks.
Therefore, it is your responsibility to choose corporate houses offering deposits, be it Non-banking Financial Companies (NBFC), Housing Finance Companies (HFC), or other companies. A “AAA” CRISIL or ICRA rating signifies high credibility and stability. Though not strictly in the monthly income genre, as the income is paid quarterly or half-yearly, you can distribute the total investment across companies to satisfy the monthly income norm.
Mutual Fund investments have emerged as the favorite option for investors looking to maximize returns through market instruments. The investment suits the risk-averse retirees and conventional investors alike for the higher returns essentially from hybrid funds. These funds attract nearly 70 to 80% of allocated assets in debt funds while the rest is in equities delivering consistent returns.
On the other hand, hybrid balanced funds allocate nearly 65% of the corpus in equities and the remaining in debt funds. You can choose from the annual or monthly dividend options. Some of the top dividend-paying balanced funds have yielded 10% or more returns over many years.
The cardinal point is that mutual funds are not guaranteed in amount or timing. Dividends are disbursed out of the profits like any market-linked instrument. Here you must consider the Systematic Withdrawal Plan (SWP) in Mutual Funds, specifying a fixed monthly amount. Thus, you enjoy the benefit of a fixed monthly withdrawal and stay invested simultaneously.
While we have discussed the plans that permit unlimited investment options, you can still explore a few more schemes providing the option for periodic disbursement of the accrued interest.
The scheme offers a fixed 5-year tenure and currently, it is paying 6.6% interest per annum and disbursed monthly. Accordingly, you earn Rs.55 every month on an Rs.10000 deposit. In addition, you can open an account for single or joint operations. However, you can invest in multiples of Rs.1000 limited to a maximum of Rs.4.5 Lac singly and Rs.9 Lac jointly. The best part is that your investment is fully secure as it carries a sovereign guarantee.
A government-sponsored low-risk scheme tailored for senior citizen retirees to fulfill their social obligations. You can invest up to Rs.15 Lac for a 5-year tenure in all the post offices and designated banks across the country. The scheme enjoys a sovereign guarantee, currently paying 7.4% interest disbursed quarterly.
Though the scheme has a fixed tenure, you can extend it for another 3 years from the maturity date. Premature closure is allowed subject to complying with the underlying conditions. However, no conditions apply for deposits withdrawn prematurely after one year during the extended tenure.
Government Bonds are also called G-Secs, Government Securities for short. They are long-term investment schemes helping the central and state government raise funds to meet infrastructure development expenses. These bonds are essentially long-term debt instruments issued for tenures from 5 to 40 years with a fixed maturity date.
However, the investment is ideally suited for low-risk investors earning a fixed coupon rate, as the interest is called, higher than offered in banks or the post office fixed deposit schemes. Moreover, RBI has stipulated half-yearly interest disbursement to satisfy your requirement of earning periodic returns.
The RBI has also opened the Indian bonds market to retail investors from November 2021, making investments in the scheme attractive. In addition, there is no monetary ceiling for investments in G-Secs.
Retirees and homemakers are the primary investors in monthly income schemes that lend stability and financial independence through a steady monthly income. However, choosing the right investment vehicle depends mainly on your investment goals. Therefore, while considering the various impacting factors, the monthly investment portfolio must also deliver the following:
Augment Regular Income Flow: Provide stability through a regular income stream and financial independence to individuals with limited resources like retirees. In addition, the lump sum Rs.25 Lac investment is a security shield to meet financial emergencies apart from supplementing regular expenses.
Tax Benefits: While interest earning from Bank deposits and SCSS is free from TDS up to Rs.50000 for senior citizens, others enjoy similar benefits up to Rs.40000. Moreover, Investments in SCSS and G-Sec are tax-exempt up to a maximum of Rs.1.5 Lac under Section 80C of the Income Tax Act, 1961. However, other investment schemes offer no such benefit. (*Tax benefit is subject to changes in tax laws. Standard T&C apply.)
There are many investment options for Rs.25 Lac for monthly income. However, meticulous analysis about the return on investment and your objectives is the clincher. Bank or corporate deposits for a guaranteed fixed monthly income is ideal for risk-averse individuals. On the other hand, explore monthly income mutual fund plans to maximize returns without fixed income assurance from market-linked instruments. In either case, investors are ensured financial stability and independence.
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