Investing 25 lakhs for monthly income is a common goal for people who want to generate a passive income stream and achieve financial independence. There are various investment options for monthly income available in India that offer monthly returns, but they differ in terms of risk, return, tenure, tax liability, and flexibility. Therefore, one should consider risk tolerance levels, financial goals, purpose, and tenure before choosing an investment option.
Some of the popular schemes that offer monthly returns in India when you invest 25 lakhs for monthly income are:
Monthly Income from 25 Lakhs Investment
|Expected Annual Return
|Expected Monthly Income
|Debt Mutual Funds: Systematic Withdrawal Plan*
|Post Office Monthly Income Scheme***
The above table is for illustrative purposes only and does not constitute investment advice. The actual returns and income may vary depending on various factors such as market conditions, taxation, charges and fees.
*Mutual funds returns are subject to market risks and do not guarantee returns. With the SWP option, investors can regularly withdraw their invested capital.
**The monthly income from FD and CD is the interest generated from the principal amount. On maturity, the principal is repaid to the investor.
***POMIS offers monthly income through interest payout. However, the scheme has a maximum investment limit of INR 9 Lakhs (single account) and INR 15 Lakhs (joint account). On maturity, the principal is repaid to the investor.
Systematic Withdrawal Plans (SWP)
SWPs allow investors to withdraw a fixed amount or a percentage of their investment from a mutual fund scheme at regular intervals, such as monthly, quarterly, or annually. They suit investors who want to create a regular income stream from their existing mutual fund investments. The returns depend on the performance of the mutual fund scheme and the withdrawal date. The withdrawals are subject to capital gains tax as per the holding period and investor’s tax slab.
Furthermore, it is important to note that SWP withdrawals comprise capital gains and invested capital. Only if the withdrawals are equal to or less than the capital gains, the invested capital will remain intact.
From the above estimation, investing 25 lakhs for 30 years and opting for an SWP of INR 12,500, you will still have INR 21,77,316 left with you.
However, it is important to consider the impact of inflation here. The purchasing power of INR 12,500 today will not be the same 30 years from now. The worth of INR 12,500, 30 years from now, will be INR 2,176.38 (at a 6% inflation rate).
These are deposits made with banks or other financial institutions for a fixed period of time and earn a fixed rate of interest. They suit investors who want a guaranteed and safe return with low risk. The returns are fixed and do not depend on market fluctuations. The interest income is taxable as per the income tax rules. Some banks offer monthly income schemes where the interest payments are monthly.
The interest income is only for the specific duration i.e., the FD tenure. To generate continuous monthly income, you must renew the deposit at the end of the tenure. Most banks offer auto-renewal of FDs, but the renewal will happen at the prevailing interest rates.
These are deposits made with companies or non-banking financial companies (NBFCs) for a fixed period of time and earn a fixed rate of interest. They are suitable for investors who want to earn higher returns than bank deposits but are willing to take some risk. The returns are fixed and do not depend on market fluctuations. The interest income is taxable as per the income tax rules. The risk involved is that the company or NBFC may default on paying the interest or principal amount.
Similar to fixed deposits, corporate deposits earn interest only for the tenure of the deposit. At the end of the tenure, investors must invest in a new deposit scheme to generate monthly income.
Post Office Monthly Income Scheme
The post office monthly income scheme (POMIS) is a government-backed scheme that offers monthly income to investors. You can open a POMIS account with any post office and deposit a minimum of INR 1,000. However, the maximum limit is INR 9 lakh for a single account or INR 15 lakh for a joint account. The tenure of POMIS is 5 years, and the current interest rate is 7.40% per annum, payable monthly.
At the end of the tenure, you must renew your deposit to continue earning monthly income.
POMIS is ideal for investors who want assured returns and the safety of capital. POMIS has low liquidity as premature withdrawal is allowed only after one year with penalty charges. Also, the interest income is fully taxable per the investor’s slab rate.
Factors to Consider for Rs. 25 Lakh Monthly Investment Income
Investing is to earn returns. However, focusing on monthly income entails different considerations than long-term investments. The following are the key factors to weigh for monthly income investments:
- Safety: Bank FDs and post office schemes are considered to be the safest investment avenues. Their wide presence across the country, coupled with DICGC cover and stringent RBI regulation, ensures the safety of deposits.
- Guaranteed Returns: Investors with a low-risk profile often prefer guaranteed returns rather than being subject to market volatility.
- Flexibility: When investing INR 25 lakhs, you must choose the right investment carefully. The monthly income should be sustained across varying tenures and provide a premature withdrawal option for liquidity.
- Tax Implications: Assessing the tax implications on the monthly income from INR 25 lakh investment is crucial. For instance, interest income is added to the total taxable income of the investor and a TDS is also deducted. Similarly, capital gains from debt mutual funds are also taxable.
Frequently Asked Questions (FAQs)
The returns from debt funds attract short or long-term capital gains. If the units are sold before three years, the short-term gain is added to the investor’s income. On the other hand, LTCG at 20% is payable if the units are sold after 3 years. However, as per the Budget 2023, the finance ministry has removed the long-term capital gains benefit for debt funds. Thus, capital gains arising from debt funds will be added to the total taxable income.
As the name suggests, monthly income schemes are suitable for investors who are looking for monthly income. These investors can be retirees, homemakers or freelancers who want to be financially independent. Therefore, based on your investment goal, you can pick the right monthly income scheme for your investment portfolio.