Investment Plans for Monthly Income in India

Posted On: 19 April 2023

It’s no secret that financial security in life plays a crucial role in providing peace of mind. And, with a reliable monthly source of income, you can keep numerous, if not all, stressors of life at bay.
Investment schemes, such as monthly income plans are designed to provide a regular income, thereby offering a degree of financial security. These plans come with various features that make them an attractive investment option.
Here’s a look at some of the best investment options for generating fixed monthly income plans in India.

Table of contents

Investment plans for monthly income
Factors to consider before investing in monthly income schemes:
Features of monthly income plans
Benefits of buying a monthly income plan
How to choose the right monthly income plan based on your financial goals
Tax implications of monthly income plans in India

Investment plans for monthly income

Here’s a list of some of the monthly income plans that you could look at:

Senior Citizen Saving Scheme
Post Office Monthly Income Scheme (POMIS)
Long-Term Government Bonds
Life Insurance Plus Saving

Factors to consider before investing in monthly income schemes:

There are certain important factors that investors must consider before investing in monthly income plans.

Interest rates: The foremost factor to consider while investing in these schemes is the interest rates offered by them. Compare the interest rates offered by different schemes before investing to maximise the returns.
Risk appetite: Assessing your risk appetite is crucial when investing in any monthly income scheme. While some schemes are riskier than others, you should select the one that aligns with your risk profile.
Investment horizon: The next factor to consider is the tenure of the investment. This will directly impact your returns. If you have a short investment horizon, then you should consider schemes with shorter tenures.
Tax implications: Understanding the tax implications of the investment is also very important. You can also opt for some investment options that offer tax benefits. This will help in reducing your tax liability for a specific period.

Features of monthly income plans

Monthly income plans are attractive investment options for investors seeking regular income. Let us look at the key features of monthly income plans that are available in the market:

Regular income: The money invested in these monthly income plans can generate regular income for investors. This income can be in the form of interest and paid monthly. Some schemes also offer returns quarterly or annually.
Interest rates: The interest rates offered by different monthly saving schemes may vary. These interest rates depend on the investment option chosen and can be fixed or variable. For instance, monthly income plans based on fixed deposits generally offer a fixed rate of interest, while mutual fund-based plans can offer a variable rate of return.
Tenure: The investment tenure also varies from one scheme to another. It can range from a few months to several years.
Risk: The degree of risk these monthly income plans carry is also different depending on the investment option chosen. You must analyse your risk-appetite carefully before investing in a monthly income plan.

Benefits of buying a monthly income plan

Regular Income: These plans offer financial stability as they can provide regular income, thereby allowing investors to meet financial needs without dipping into savings.
Diversification: Various investment options offer monthly income plans. Investors can diversify their portfolios to mitigate the investment risk.
Flexibility: An important benefit of fixed monthly income plans is that they offer flexibility in terms of investment amounts, pay-out options, and tenures. Investors can choose an investment option that suits their financial goals and risk appetite.
Taxation: Some monthly income plans also offer tax benefits to investors, while others are subject to tax at the applicable rates.

How to choose the right monthly income plan based on your financial goals

Choosing a suitable per month income plan depends on understanding how each option aligns with your financial goals, income needs and risk tolerance. Since each product operates differently, reviewing liquidity, tax treatment and predictability of payouts may help you decide more effectively.

The Senior Citizen Saving Scheme may be suitable for individuals above 60 seeking relatively steady, government-backed income. It offers regular interest payouts and a fixed tenure, which may support retirees who prefer predictable cash flow. However, withdrawals before maturity come with restrictions.

The Post Office Monthly Income Scheme may be suitable for conservative investors looking for a government-backed option that provides interest payouts every month. It is useful for those who seek structured income but do not require market-linked growth. Liquidity is limited, and premature closing may attract penalties.

Long term government bonds may suit individuals willing to lock in funds for longer periods in exchange for relatively steady interest payouts. These bonds carry sovereign backing but may fluctuate in value if sold before maturity, so they may be more suitable for those who plan to hold them fully.

Life insurance plus saving plans combine protection with long-term saving. They may be suitable for individuals who want insurance coverage along with structured payouts, though they require long-term commitment and may offer lower liquidity compared to other options.

Tax implications of monthly income plans in India

Tax implications for per month income plans depend on the nature of each product and how the payouts are classified under the Income Tax Act. Their treatment is based on interest income or insurance-specific rules.

Senior Citizen Savings Scheme (SCSS) and Post Office Monthly Income Scheme (POMIS):
Interest earned from SCSS and POMIS is taxable in the year of receipt. It is added to the investor’s total income and taxed according to the applicable income tax slab. While the interest itself is not tax-exempt, the overall tax liability may be impacted by the basic exemption limit or rebates available under the chosen tax regime.
Long-term government bonds:
Interest received from taxable government bonds is treated as income from other sources and taxed at the investor’s applicable slab rate. If such bonds are sold before maturity, any resulting gains are taxed as capital gains, with the applicable tax rate depending on the holding period and whether the bonds are listed or unlisted.
Life insurance-cum-savings plans:
Payouts from life insurance-cum-savings plans may be exempt from tax under Section 10(10D) of the Income Tax Act, 1961, provided specified conditions—such as limits on the premium-to-sum-assured ratio—are met. If these conditions are not satisfied, the maturity proceeds or gains may be taxable, depending on the policy type, issue date, and payout structure. Death benefits under life insurance policies are generally tax-exempt, subject to prevailing provisions.

To sum it up, investing in monthly income plans can help you generate a steady income stream and offer a range of benefits. However, it can be difficult to zero in on investment plans for monthly income. Therefore, it is essential to research the advantages of the different investment options and consider your risk appetite before investing in any of these schemes.

FAQs:

What can I invest in to get monthly income?

You can invest in multiple investment options to generate monthly income. Some of the investment plans for monthly income include bank’s fixed deposit, senior citizen saving scheme, post office monthly income scheme, and mutual funds, among others.

What is the minimum investment required for monthly investment schemes?

The minimum investment amount required for monthly income investments varies depending on the investment option. For example, the minimum investment amount for Senior Citizen Saving Scheme is Rs.1,000.

What is the rate of return on monthly income investments?

The interest on monthly return investment plan may vary for different investment options and is dependent upon the prevailing market conditions. For instance, POMIS offers interest at a rate of 7.4% and SCSS offers an interest rate of 8.2%. (Data as on 3-April 2023)

Are monthly income plans suitable for all age groups?

Monthly income plans may be suitable for individuals seeking relatively steady cash flows. Suitability depends on financial goals, risk tolerance, and investment horizon rather than age alone.

What are the risks associated with monthly income plans?

Monthly income products each carry distinct risks. Senior Citizen Saving Scheme and Post Office Monthly Income Scheme offer predictable interest but face reinvestment risk, inflation impact, penalties on early withdrawal, and taxable payouts. Long-term government bonds carry interest rate and reinvestment risks. Life insurance plus saving products offer limited liquidity, relatively steady returns, and possible charges, requiring careful evaluation.

How does inflation impact monthly income schemes?

Inflation may reduce the purchasing power of periodic payouts from monthly income schemes.

Can I withdraw my investments before maturity?

Most monthly income products allow early withdrawal with conditions. Senior Citizen Saving Scheme and Post Office Monthly Income Scheme permit premature closure but impose penalties. Long-term government bonds may be sold in the market, though prices fluctuate with interest rates. Life insurance plus saving products allow surrender, but early exit may reduce payouts. Reviewing each product’s terms is essential.

What is the tax treatment on the income received from monthly income plans?

Interest earned from the Senior Citizen Savings Scheme (SCSS) and the Post Office Monthly Income Scheme (POMIS) is taxable and added to the investor’s total income, where it is taxed according to the applicable income tax slab. Interest received from taxable long-term government bonds is also treated as regular income. If such bonds are sold in the secondary market before maturity, any gains may be subject to capital gains tax, depending on the holding period and prevailing tax rules. Payouts from life insurance-cum-savings plans are eligible for tax benefits only if specified conditions are met, as detailed in the policy terms and applicable tax provisions.

Mutual Fund investments are subject to market risks, read all scheme related documents carefully.
This document should not be treated as endorsement of the views/opinions or as investment advice. This document should not be construed as a research report or a recommendation to buy or sell any security. This document is for information purpose only and should not be construed as a promise on minimum returns or safeguard of capital. This document alone is not sufficient and should not be used for the development or implementation of an investment strategy. The recipient should note and understand that the information provided above may not contain all the material aspects relevant for making an investment decision. Investors are advised to consult their own investment advisor before making any investment decision in light of their risk appetite, investment goals and horizon. This information is subject to change without any prior notice.

The content herein has been prepared on the basis of publicly available information believed to be reliable. However, Bajaj Finserv Asset Management Ltd. does not guarantee the accuracy of such information, assure its completeness or warrant such information will not be changed. The tax information (if any) in this article is based on prevailing laws at the time of publishing the article and is subject to change. Please consult a tax professional or refer to the latest regulations for up-to-date information.

Author

Shubham Pathak

Content Manager, Bajaj Finserv AMC |

Shubham Pathak is a finance writer with 7 years of expertise in simplifying complex financial topics for diverse audience.

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