Investing with a clear objective in mind is essential for ensuring financial stability and growth. One popular objective is generating a steady monthly income. Choosing the best investment plan for monthly income may seem challenging given the plethora of options available in the financial market. This article explores various investment plans, focusing on their potential to yield consistent monthly returns, and provides detailed insights into their advantages and drawbacks.
Fixed Deposits (FDs)
Fixed Deposits (FDs) are the quintessential choice for many conservative investors looking for guaranteed monthly income. Banks and financial institutions offer FDs with a fixed rate of interest for a specific tenure. On choosing the monthly interest payout option, investors receive a consistent income throughout the deposit period.
Example Calculation
For instance, if you invest ₹10,00,000 in an FD at an annual interest rate of 6%, with a monthly payout option, the monthly interest income will be:
Monthly Interest = = = ₹5,000.
FDs are reliable for their safety and predictable returns, although they usually offer lower returns compared to other investment avenues.
Post Office Monthly Income Scheme (POMIS)
The Post Office Monthly Income Scheme (POMIS) is a government-backed savings scheme specifically designed to provide monthly income. It offers a fixed interest rate, reviewed periodically by the government. The principal is secure, and the investors get monthly interest payouts.
Example Calculation
Consider an investment of ₹9,00,000 in POMIS at an interest rate of 6.6% per annum:
Monthly Interest = = = ₹4,950.
POMIS is ideal for risk-averse investors seeking regular income, but its maximum investment cap limits its utility for high net-worth individuals.
Senior Citizens’ Saving Scheme (SCSS)
The Senior Citizens’ Saving Scheme (SCSS) is tailored for senior citizens looking for a stable monthly income. With a tenure of 5 years (extendable), and backed by the government, SCSS offers an interest rate higher than FDs and POMIS.
Example Calculation
An investment of ₹15,00,000 in SCSS at an interest rate of 7.4% per annum produces:
Monthly Interest = = = ₹9,250.
SCSS is a safe and rewarding choice for senior citizens, but premature withdrawals may attract penalties.
Systematic Withdrawal Plan (SWP) in Mutual Funds
A Systematic Withdrawal Plan (SWP) allows you to withdraw a fixed amount regularly from your mutual fund investment. Unlike other fixed-income schemes, SWPs offer potentially higher returns while enabling flexibility.
Example Calculation
Suppose you invest ₹10,00,000 in an equity-oriented mutual fund with an annual growth rate of 10%. If you opt to withdraw ₹10,000 monthly, your SWP would adjust the units withdrawn accordingly.
This option introduces market risks, as the returns fluctuate with market performance. However, proper fund selection can optimize the returns and balance the income and growth needs.
Dividend Payout Mutual Funds
Some mutual funds offer dividends from the profits generated by the investment portfolio. Choosing funds with a monthly dividend payout can provide consistent income, although the amounts are not guaranteed.
Example Calculation
If you invest ₹5,00,000 in a dividend yield fund offering an annual dividend yield of 8%, the estimated monthly income would be:
Monthly Dividend = = = ₹3,333.
Mutual fund investments in dividend payout mode may provide higher returns but come with market risks and dependency on fund performance.
Annuities
Annuities purchased from insurance companies guarantee periodic payments for a specified term or lifetime. Usually purchased as a lump sum investment, annuities offer customization in payment frequency and are suitable for ensuring long-term income flow.
This option provides stability and guaranteed payouts, although it can be costlier due to operational charges and may offer lower returns compared to other instruments.
Loans Against Fixed Deposits or Securities
Loans against fixed deposits or securities enable leveraging assets to generate monthly income. The interest difference between the earned return from FDs and the paid interest on the loan can create a revenue stream, although it involves borrowing and associated risks.
Real Estate Investment
Real estate can be a stable source of passive income through rental yields. Investing in residential or commercial properties can yield 2-5% annually. However, considerations such as property management costs, capital appreciation potential, and market conditions influence net returns.
Example Calculation
For a property valued at ₹50,00,000 with an annual rental yield of 4%:
Annual Rent = ₹50,00,000 \times 4% = ₹2,00,000 \Rightarrow Monthly Rent = = ₹16,666.
Real estate investment involves high initial capital and the risk of property value fluctuations.
Summary
Selecting the best mutual fund investment plan for monthly income involves balancing returns with risk tolerance and liquidity needs. Fixed Deposits and governmental schemes such as POMIS or SCSS provide safety and predictable returns. SWPs and dividend payout mutual funds offer higher return potential at increased risk. Annuities ensure long-term regular income while leveraging loans against securities can optimize earnings strategically. Real estate investments offer additional stability, given appropriate market conditions.
Investors must conduct thorough personal research and possibly consult financial advisors to tailor their investment strategies as per individual risk tolerance and financial goals.
Disclaimer: Investments are subject to market risks. Investors must gauge all the pros and cons of trading in the Indian financial market before committing to investment decisions.
