The only certain factor in this world is the uncertainty and hence the need to save. Irrespective of how handsomely one earns, in the long run, what counts is how much one has saved or invested. The money kept in your purse doesn’t, but Investment helps your money to grow by itself and provide you with an alternate source of regular income.
The economy is showing signs of a turnaround, and the worst may be behind us, but it is not too distant in the past that we heard of pay cuts and pink slips every other day. In the absence of any active source of income or reduction in the monthly take-home, one would require a passive source of regular income. There are several options to ensure an alternative source of income such as Fixed Deposits, rent, interest, mutual funds, dividend income, etc. and you need to choose your options carefully.
Corporate Fixed Deposits
As mentioned above, Bank fixed deposits can offer fixed but not high returns. If you have the intention of taking more risk, you can opt for another variant of fixed deposit which is a company fixed deposit. The catch in this mode of investment is that you cannot withdraw your deposit before maturity. These investment instruments are outside the control of the Reserve Bank of India. Mostly these are operated by housing finance companies and Non-Banking finance companies (NBFCs). It can prove to be a lucrative option of investment in a longer duration. You need to research the reputation and credibility of the companies as most of them offer a higher interest rate than bank deposits. If you are above the age of 60 years, you can get additional interest rates of 0.25% to 0.5%.
Post Office Monthly income scheme
Post Office MIS is a way of investment wherein you can invest your money and can get a regular monthly income. The monthly income generated from this scheme would directly depend on the amount you have invested. Currently, the interest rate offered by this scheme is 7.3 % per annum and over and above that you can earn a bonus of 5%. The bonus payment is paid after the end of the term which is five years. Before investing you can calculate your return by using the post office monthly income scheme calculator at the current interest rate. Under any circumstances, if you wish to withdraw earlier than three years, you would be charged a deduction of 2 percent complete one year of deposit. If you withdraw the same between 3 years to 5 years, the deduction will be 1% of the total amount deposited. You can invest a maximum amount of 4.5 lakhs through this scheme in your capacity. But this figure can go up to nine lakhs if you are investing from a joint account.
Senior Citizen Savings
There would be a time when your employment would end and with that your regular salary. Government organisations and few other organisations give pension to their retired employees, but it may not be sufficient to fulfil all your needs. In such situations, you should opt for the Senior Citizen Savings Scheme as this is tailor made for the Senior Citizens. If you are above the age of 60 years, you can invest in it and can get an interest of 8.5% annually. There is a provision that also allows you to invest at the age of 50 or 55 in case you have taken voluntary retirement or if you have retired from the armed forces. Currently, the lock-in period for this scheme is set at five years, but you can opt to increase it by three years again. Fifteen lakhs is the maximum amount you can invest. Please note that only the amount invested under this scheme is exempted from tax but the interest earned is taxable. You need to note some salient features like your account should be opened within the first month of receiving your retirement benefit. Also, the amount you intend to deposit should not be greater than the retirement benefit amount received.
Regular Monthly Income through Rent from Real Estate has been a traditional and frequently used option for investment for many generations in India. You might have heard elders in your family about the need of owning a second home or building another floor. The fact that the price of land, flats and other properties have increased in an inflated manner in the past has made it so popular. You can derive rent from both domestic and commercial properties.
The other most conventional way of investment is Fixed Deposit because of it considered a risk free nature. Under normal circumstances, the rate of interest earned on such deposits remains fixed for a specific period. You can opt for a scheme which gives you a monthly interest payment after the completion of the term. Currently, the interest rate offered by most of the Indian banks in India varies from 8% to 9% per annum. However, you must note that the interest earned on such deposits is entitled to be taxable wherein the interest earned exceeds rupees ten thousand a year.
Pradhan Mantri Vaya Vandana Yojana (PMVVY)
This scheme is also one such Scheme which is tailor-made for the Senior Citizens. If you are above the age of 60 years, you can invest in it. The central government launched this scheme in 2017 with assistance from Life Insurance Corporation of India. The benefits provided in this scheme include maturity benefit and also the death benefit. Initially, the maximum amount you can invest was set at 7.5 lakhs, but in 2018 the investment limit was increased to 15 lakhs.
Monthly Income Plan of Mutual Funds
Monthly income plan of mutual funds is a way of investment wherein you can invest your money and can earn a regular monthly income. Currently, the standard interest rate offered in this is between 8% to 9% per annum. However, you need to be aware that a return of 9% per is maximum and that is not cent per cent guaranteed. The Monthly income received from MIP is called as dividends which are exempted from tax. Unlike the conventional investment options, this instrument carries some amount of risk. The risk is worth taking considering the return, and you can avail a dividend-payout option with a term period of 2 to 3 years. Under normal circumstances, the ratio of investment followed by most mutual funds is 70-80 per cent in debt and 20-30 per cent in equity.
SWP with Mutual Funds
There is another instrument of investment wherein you can earn your monthly money, and that is SWP. You have an option to choose a specific amount of payout with a different set of time intervals namely monthly, half-yearly or annually. It is, for this reason, it is also known as a Systematic Withdrawal Plan of Mutual Funds.
SIP with Mutual Funds
This is a very popular instrument of investment wherein you can invest your money, and that is a SIP or Systematic Investment Plan. You have an option to choose a specific amount of payout with a different set of time intervals namely weekly, monthly, quarterly, half-yearly or annually. The best part of opting for SIP with mutual funds is that you can start this with an amount of 500 or higher. You can decide on the period at the time of inception of this investment. This can range between from 4 years to 35 years and the period can influence the returns to depend on the mutual fund. When you consider this option, ascertain the amount of risk you are willing to take. The returns on the mutual fund are different for it is influenced by the risk profile that every mutual fund carries. By intelligently selecting and diversifying, you can buy your choice and number of units of these mutual fund schemes at the current rate, also known as the Net Asset Value (NAV). The period of investment in these schemes is not predefined and so it’s entirely your prerogative on when you want to en-cash it. If the share market has gone up, the units of these mutual fund schemes can be cashed out at higher Net Asset Value (NAV) for a profit.
Unit Linked Insurance Plans (ULIP)
Another popular instrument of investment in the Unit Linked Insurance Plan which allows you to invest in bonds and equities. It comes with an insurance clause. In this investment plan, a predefined portion of your premium is invested in your choice of stocks and bonds, and the remaining is used for a life insurance cover. The proportion of risk in this method of investment is high as the returns are always fluctuating. Similar to the case of mutual funds, if the share market has gone up, the units of these Unit Linked Insurance Plans can be cashed out at higher Net Asset Value (NAV) for a profit.
The above list is not exhaustive, and these are only some of the many options which can help you create an additional regular monthly income. Irrespective of whether you are salaried or pensioner, you can go for these options as they would not burn a hole in your pocket. Since the need for money or regular monthly income is a continuous process and the same logic must apply while choosing a monthly investment plan. Indians have traditionally been risk-averse but in today’s market you have more options available than previous decades. Analyse your short term and long term needs, the capital amount you can invest every month or year, and approximate risk before zeroing on your investment plan.
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