Are you looking for an investment avenue that is safe and secure, earns substantial returns with a short locking period, which says no to equities, and is absolutely risk-free? Well then, think about investing in a Post Office Monthly Income Scheme (POMIS).Read more
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A monthly Income Scheme (MIS) is an investment scheme that promises the investor guaranteed returns at an interest rate of 6.60% per annum. These returns can be availed as fixed monthly income.
Post Office Monthly Income Scheme (POMIS) is an investment scheme of the Indian postal service. It promises the investor guaranteed returns at 6.60% per annum in the form of fixed monthly income. Seasoned investors consider MIS to be one of the smartest investment plans to park funds as it gives you three merits – keeps your capital intact, yields better returns than debt instruments, and assures a fixed monthly income.
Urban investors are often reluctant to make an investment in POMIS. It looks very old world but so as you know it was the post office, that introduced banking services in India and is still the largest banking service provider in the country. Being administered by the Ministry of Finance, it boasts of far greater credibility than any other form of investment.
POMIS account is transferable from one post office to another. The best thing is that it can be done absolutely free of cost.
For every post office deposit, you make a separate account has to be opened. The good thing is that one person can open ‘N’ number of accounts (of course up to the upper limit).
The maturity amount realized at the end of the term can be reinvested in POMIS.
The investor can also appoint a nominee for his Post Office Monthly Income Scheme account. So, in case of his unfortunate demise, his nominee becomes entitled to get his money.
The good news is that there is no TDS (Tax Deduction at Source) here to eat away your capital. The bad news is that the interests so earned are taxable.
The maturity term for MIS is 5 years. Ideally, you should withdraw the amount after 5 years. At the end of the term, you’ll get back every single penny that you had invested. Needless to say, you keep getting your fixed monthly income for this whole period. However, if you have to withdraw the money before 5 years, here’s what happens.
Withdraw the deposit within 1 year – You get nothing
Withdraw the deposit in 1 -3 years – You get your deposit back after a nominal 2% deduction (as a penalty)
Withdraw the deposit after 3 years - You get your deposit back after a nominal 1% deduction (as a penalty)
Post Office Monthly Income Scheme does not offer any tax rebate under section 80C. Simply put, the amount invested in POMIS is not tax-deductible.
If the monthly payouts are not withdrawn, they sit idle and do not yield any interest.
There is no TDS on the Post Office MIS, but the interest income is taxable in your hands.
Making an investment in Post Office Monthly Income Scheme is as easy as a pie and requires minimal documentation. The investor needs to submit a copy of the address proof and identity proof (passport/PAN card/ration card/voter identity card) and passport size photographs.
To get started, the investor needs to open an account. He can opt for either an individual account or a joint account. The table below shows the minimum and maximum amount that can be invested in Post Office Monthly Income Scheme.
|Lower Cap||Upper Cap|
|Single Account||Rs 1,000||Rs 4,50,000|
|Joint Account||Rs 1,000||Rs 9,00,000|
Mr. Sharma chooses to make an investment in MIS. He invests Rs 4,50,000 with a maturity period of 5 years. At an annual interest rate of 6.6%, he should get a fixed payout of Rs 2,475 every month (this figure can be summed out very easily on a Post Office Monthly Income Scheme calculator available online). At the end of the investment tenure, he’ll get his deposit money back.
The money can be withdrawn in two ways, either directly from the post office or get credited to your savings account through ECS. The money is usually meant to be withdrawn on a monthly basis. However, the investor can let it accumulate over a few months and then withdraw it but it’s not of much use as the idle money will not earn you any interest.
To make Post Office Monthly Income Scheme more effective at yielding returns, a new feature was added to it. The investor has the option of combining it with a recurring deposit wherein the interest that you earn on a monthly basis is invested in a recurring deposit. This, in turn, lets your money grow even more money.
POMIS has been designed for risk-averse investors, with a big no to equity instruments, hunting for a source of fixed monthly payouts. It is most aptly suited to the needs of senior citizens and retired people who have just entered the no-more-paychecks zone and are ready to make a one-time investment with the sole purpose of getting a safe regular income so as to maintain their lifestyle. Simply put, Post Office Monthly Income Scheme is for those who are looking for a long-term regular source of income.
The only pre-requisite is that the investor should be a resident Indian. NRIs cannot make an investment in Post Office Monthly Income Scheme. The best thing about this post office savings scheme is that the lower cap on the entry age is set at 10 years. So, even a 10-year-old minor can open a POMIS account in his name. The maximum amount that a minor can invest is separate.
People often get confused between the Monthly Income Scheme and Monthly Income Plan. To make it worse the Monthly Income Plan itself is used both in the context of insurance and mutual funds. Here are the essential differences between the three. Hopefully, it’ll bust out the misconceptions once and for all.
|Monthly Income Scheme||Monthly Income Plan(Mutual Fund)||Monthly Income Plan (Insurance)|
|A post office investment scheme guarantees fixed monthly income at a 6.60% annual rate||A debt oriented mutual fund in which the investment is made in equity-debt instruments in a 20:80 ratio||A variant of retirement plan in which the annuities are paid to the insured in form of monthly income|
|Monthly income is guaranteed||Monthly income is not guaranteed. Rather, it depends on the returns earned for that particular period||Monthly income is fixed and guaranteed. It is created out of the nest egg of the premiums paid throughout the policy tenure|
|TDS is not applicable. However, interest earned is taxable||TDS is not applicable||The annuity paid monthly is taxable|
|MIS suits best to those who cannot afford to bear any risk such as old aged and retired people||MIPs are for those risk-averse investors who like to stay somewhere in between the safe-but-unyielding debt funds and the risky-but-yielding equity funds||Retirement monthly income plans are for those who are looking to get the dual benefits of insurance and investment|
|The locking period is just 1 year after which the investor can withdraw the money, but not without incurring 1-2% penalty charges||The investor has to incur a 1% exit load for cashing the units within 1 year of investment||The investment tenure is quite long (as this is a long term plan) and the insured has to incur surrender charges for withdrawing the amount before the policy term|
|There's a limit to the amount you can invest in POMIS (4.5 lakh for a single account, 9 lakh for a joint account)||There's no such limit on investment amount in MIPs||No limit on investment amount|
|The returns are fixed at 6.60%||The returns are not fixed. They can shoot up to 14% at times or tumble down even negatively.||The motive of monthly income plans is to ensure and secure the capital, rather than getting the returns|
Post Office Monthly Income Scheme has faced a steep decrease in the interest rate from 8.40% to 6.60%, payable monthly. The interest rate prior to April 1, 2016, was 8.40%. Here, it is important to know that the income earned by interest through this scheme is taxable. In addition, an individual can invest a maximum of Rs. 4,50,000 in Post Office Monthly Income Scheme. This amount includes his/her share in the joint accounts. The minimum deposit is Rs. 1,000 and deposits are accepted in the multiples of Rs. 1,000.
Here is a table that represents the New MIS Interest Rates:
|Scheme||MIS Interest Rate||Maturity||Important Points|
|W.E.F. April 1, 2020||Prior to April 1, 2016|
|Monthly Income Scheme (MIS)||6.60%||8.40%||5 years||Interest Income Payable|
The Monthly Income Scheme is surely an effective investment tool that efficiently deploys the capital to earn guaranteed monthly income for you throughout the investment tenure. Moreover, it comes with the infallible backing of the government. No wonder, Post Office Monthly Income Scheme is an all-time favorite among old aged, retired people and risk-averse investors.
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