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What is a monthly income plan?

Monthly income plans are those mutual funds that primarily invest in debt securities. The asset allocation of these plans is such that approximately 80% of the assets are invested in debt securities. The main objective of these plans is to provide returns to investors on a monthly basis. However, these plans do not guarantee returns as they are market-linked.

Monthly income plans best suit investors who are looking for an additional source of income. They also suit investors who are looking for a source of monthly income during retirement. 

Monthly income plans yield higher returns than its traditional counterparts like FDs and post office monthly income schemes. Unlike the traditional investments, monthly income plans do not have a lock-in period, nor maximum investment cap and no minimum age of investment. However, there is an exit load of 1%.

Monthly income plans are basically of two types, dividend based and growth based. In dividend based MIPs, the monthly payouts are in the form of dividends. Whereas, in growth based MIPs, the money is not paid out in regular intervals. Instead, it is paid at the time of redemption.

income plan
income plan

What is a guaranteed income plan?

Guaranteed income plans offer regular income along with maturity benefits and life insurance. These plans best suit investors who prefer getting guaranteed income from their investments. Guaranteed income plans have a regular payout which is at a predetermined percentage of the sum assured. The payout can be monthly, quarterly, half yearly, or yearly.

The returns from these schemes are not market-linked. Their performance doesn’t depend on the market. Hence one can consider them as risk-free investments. However, the returns from these plans are lower than market-linked instruments. In such plans, the policyholder gets to choose the payout intervals.

These plans also offer insurance. Any individual in the age group of 18-60 years can invest in these plans. These plans also offer maturity benefit upon the completion of the policy tenure. In case of the sudden demise of the policyholder, the nominee receives the payout benefit.

Guaranteed income plans offer tax exemptions under Section 80C and 10D of the Income Tax Act, 1961. However, these exemptions are available for premiums payable and maturity benefits after the policy tenure completion. One should choose a guaranteed income plan after comparing multiple options available in the market. One can also seek the advice of an expert regarding the same.

How do I make monthly income?

The main objective of investing is to generate significant returns (capital gains) or earn regular monthly income. During retirement, regular monthly income is a boon. Also, an additional source of income during employment days can help in achieving goals faster. To be able to generate monthly income, one should invest in the right avenues. Therefore, it is important to know about the schemes that will help in generating monthly income.

Monthly income plans generate money in the form of dividends and interest. These schemes primarily park the money in debt or low risk securities. The primary motive of the schemes is to generate steady returns for their investors.

The income generating schemes are quite different from capital appreciation and growth schemes. Though income generating schemes do not generate high returns, they guarantee stable income in the future. Some of the schemes that help in generating monthly income are mutual funds, dividend paying stocks, fixed deposits, post office monthly income schemes, and real estate etc. These passive income generation schemes help in achieving financial independence. Therefore, investing in these avenues will help in generating regular income.

How can I get monthly interest?

There are several types of investments that offer interest on a monthly basis. Following are some popular income schemes:

Mutual Funds with Monthly Income Plans (MIPs)

The MIPs mostly invest in debt instruments. And the interest from the instruments is distributed to the investors regularly. In comparison to equity funds, the MIPs are less volatile and risky.

Dividend Paying Stocks

One way to generate monthly income is by investing in dividend-paying stocks. Investors who are comfortable putting their money directly into stocks can develop a regular income stream by investing in dividend-paying stocks.

Savings Account with high interest

These accounts offer freedom to access the funds any time. An individual can liquidate the asset without any exit load or penalty. These accounts function like fixed deposits and offer multiple benefits to the depositors.

Bank FDs

Bank fixed deposits offer monthly interest payment options. FDs are one of the most popular investment options in India. They are risk free investment options that earn regular income through interest payments. However, they are not highly liquid, and premature withdrawals attract a penalty.

Certificates of Deposit (CDs)

CDs are very safe investments that can generate monthly income.

Real Estate

Real estate investments appreciate in value in the medium to long term and also earn rents. They require heavy capital investment and hence are not feasible for all investors. However, one can invest in real estate funds such as REITs. REITs require small investments and also ensure income generation.

Post Office Monthly Income Scheme (POMIS)

POMIS is a guaranteed income scheme that suits investors looking for income generation. They offer monthly income in the form of interest payments. However, these schemes have a five year lock in period.

Senior Citizens Savings Scheme (SCSS)

SCSS is a post office savings scheme for senior citizens that offers regular income and safety to its investors. The scheme offers regular income in the form of interest payments. Interest is computed every quarter and credited to the investor’s account.

Pradhan Mantri Vaya Vandana Yojana (PMVVY)

PMVVY is a pension plan for senior citizens. Life Insurance Corporation (LIC) operates and manages the scheme. The scheme pays assured interest every month for ten years.