Monthly Income Scheme - Types, Features and Benefits of Monthly Income Plans

Numerous investors, particularly those who are getting close to retirement or who depend on a steady income source, want security in an inconsistent financial climate. One similar investment option that provides consistent monthly dividends with comparatively reduced threat is a Monthly Income Scheme (MIS). These schemes are perfect for conservative investors since they're intended to save money while offering a consistent cash inflow.

This will cover the definition of a monthly income scheme, as well as its types, characteristics, advantages, exemplifications, appropriateness, and things to consider before investing.

Open Demat account -  Start investing with a quick setup

What is a Monthly Income Scheme?

A monthly income scheme is a form of financial plan in which participants receive monthly allotments as dividends or interest. Those schemes are planned to make steady returns with less volatility, but they do not promise set returns. The earnings are paid out regularly, but the funding corpus remains broadly speaking intact.  MIS contributes to the establishment of a financial protection internet, particularly throughout the retirement years, whether or not through mutual finances, government savings schemes, or FDs. The approach must, but, be in keeping with your financial targets, tax planning, and danger tolerance.

Types of Monthly Income Schemes

Here’s a breakdown of the different types of Monthly Income Schemes available in India:

Type

Description

Post Office Monthly Income Scheme (POMIS)

A government-backed savings scheme offering fixed monthly interest payouts.

Monthly Income Mutual Funds

Debt-oriented hybrid mutual funds that offer monthly dividend payouts (IDCW).

Fixed Deposits with Monthly Payouts

Bank or NBFC FDs offering interest payouts every month.

Senior Citizens’ Savings Scheme (SCSS)

Government scheme for senior citizens with quarterly interest (can be reinvested monthly).

Annuity Plans

Insurance-backed plans offering guaranteed monthly income after retirement.

Corporate Bonds/Debentures

Fixed-income instruments issued by companies with regular interest disbursement.

Features and Benefits of Monthly Income Schemes

Feature / Benefit

Detailed Explanation

Regular Income

The purpose of monthly income schemes is to deliver a steady and regular flow of cash, usually in the form of dividends, interest, or annuity payments. Those who are retired, elderly, or have set monthly demands would particularly benefit from this consistent income.

Capital Preservation

Protecting the principal amount is one of these schemes' main objectives. Capital security is still a fundamental component of choices like Post Office MIS, bank FDs, and some annuity plans, even if returns may differ relying on the product type.

Low to Moderate Risk

The volatility of monthly income schemes is comparatively smaller than that of equity-based investments. For risk-averse investors who prefer stability over rapid development, the majority of plans are government-backed or invest in debt protection.

Tax Efficiency

Under Section 80C of the Income Tax Act, specific programs, including the Senior Citizens Savings Scheme (SCSS), provide tax deductions. Furthermore, if maintained for more than three years, several debt mutual funds have indexation advantages, which lower long-term capital earnings tax obligations.

Liquidity Options

Some programs (such as mutual funds or bank FDs) allow early withdrawal, even though the majority of monthly income schemes are long-term in nature. Examining liquidity arrangements in advancement is essential since such departures might result in fines, exit costs, or lower interest rates.

Customization

Investors can opt the scheme's period( short, medium, or long- term), dividend frequency( monthly, quarterly), and investment amount based on their income essentials and financial objects. Annuity plans and mutual funds, in particular, give a high level of customisation.

Diversified Choices

A variety of monthly income options are available to investors, similar as government savings programs, hybrid collective finances, insurance annuity plans, and fixed deposits that pay out every month. Investors can also produce a well- balanced portfolio that suits their threat and profit tolerance thanks to this variety.

Examples of Monthly Income Schemes in India

Scheme Name

Type

Monthly Return

Risk Level

Eligibility

Post Office MIS

Government Savings Scheme

~6.9% p.a. (fixed)

Low

Resident individuals

Motilal Oswal Monthly Income Plan (IDCW option)

Monthly Income Mutual Fund

Market-linked

Moderate

Varies by fund

HDFC Bank Monthly Payout FD

Bank FD

~6.5%-7.0% p.a.

Low

Any Indian resident

LIC Jeevan Akshay VII

Annuity Plan

Guaranteed (varies)

Low

Age 30+

SBI Senior Citizen FD (Monthly payout)

Bank FD for Seniors

~7.5% p.a.

Low

Senior citizens above 60

Who Should Invest in a Monthly Income Plan?

Monthly Income Schemes are best suited for:

• Retirees or senior citizens: Seeking a stable monthly income without high risk.
• Conservative investors: Who prioritize capital safety over high returns.
• Individuals with fixed monthly expenses: Such as rent, EMIs, or household needs.
• Risk-averse investors: Looking to diversify from volatile market-linked instruments.
• Parents funding education or dependent care: Needing regular disbursements.

Things to Consider Before Investing in Monthly Income Schemes

Before you choose a Monthly Income Scheme, evaluate the following:

1. Return Expectations

Whether the program offers fixed or market-linked returns is one of the most crucial things to take into account.  For example, guaranteed returns at a certain rate are provided by government-sponsored programs such as the Post Office Monthly Income Scheme (POMIS).  Mutual funds with a monthly income option (IDCW), on the other hand, are reliant on fund performance and market circumstances.  Although they have little potential for growth, fixed-income solutions provide steady cash flow.  Although they can yield greater profits, market-linked products are not always reliable.  Prior to choosing the plan that best suits your income objectives, be sure you understand them.

2. Tax Implications

Current income tax regulations impose taxes on monthly distributions from the majority of schemes. For example, profits from mutual funds are taxed according to your slab rate, while interest received from bank FDs or Post Office MIS is completely taxable. Post-tax returns need to be calculated in order to ascertain your investment's true earning capability. Some schemes, including the Senior Citizens' Savings Scheme( SCSS), can give limited tax benefits under Section 80C. Making tax-effective conclusions can help you maximize your yearly income. Before completing a strategy, always take your income bracket into account.

3. Investment Horizon

Which monthly income plan is best for you depends in large part on how long you want to invest. While some plans are more suited for medium- to long-term objectives, others have a shorter time horizon. For example, annuity plans may give lifetime payouts, whereas POMIS has a five- time lifespan. Steer clear of agreements with lengthy lock-in periods if you need money soon. Align the duration of the plan with your life stage and financial requirements. This guarantees that when you need your capital, you can get it rapidly.

4. Exit Load or Lock-in

There may be an exit burden or a specified lock-in time associated with some monthly income schemes, particularly mutual funds or plans related to insurance. The fees you accept for taking money out of your account before a certain time are known as exit loads. For example, if a hybrid mutual fund is redeemed within a year, there can be a 1 %. Annuity arrangements could also prohibit early withdrawal without severe penalties. You can better plan your cash inflow if you're aware of these situations. To avoid unpleasant surprises, always precisely read the offer paperwork.

5. Inflation Impact

Over time, the real value of your returns is lowered by fixed-income schemes' frequent inability to keep up with growing inflation. For example, your purchasing power is diminishing if you're earning 6.5 on a fixed deposit at a time when inflation is 7. As a result, though monthly reimbursements can appear consistent, their long-term sufficiency may drop. Include a variety of means that might outperform affectation, including equity-oriented hybrid funds, to help cancel this. A well-balanced portfolio guarantees that your income will continue to be enough despite rising charges. Do not overlook the quiet effects of inflation.

6. Payout Consistency

There's a wide misperception that all monthly income plans make the same amount each month. Mutual fund IDCW options only declare dividends when the fund has extra distributable revenue, but fixed-return plans similar to POMIS do give predictable payouts. This implies that there could be no dividend at all in some months. Verify the fund's strength by looking at its distribution record over the last 12 to 24 months. Select schemes with a powerful track record of dedicated distributions. A constant income is important, especially for people who depend on it to cover living expenses.

7. Risk Tolerance

The threat tolerance of each investor should be taken into consideration when opting for a monthly income plan. For cautious investors seeking assured returns, fixed-return plans are the best option. If you can handle a certain capacity of risk, debt-oriented hybrid funds, however, could ultimately cause higher returns. Being aware of your tolerance allows you to avoid snap conclusions in explosive markets.  Avoid high-return tactics that may have hidden volatility as well.  It is generally a good idea to balance security and performance according to your level of comfort.

8. Scheme Credibility

Verify the legality and reliability of the association providing the program at all times. While estimable financial institutions like Motilal Oswal provide professionally managed mutual fund alternatives, government-backed programs like POMIS or SCSS offer a high level of safety. Avoid scams that promise illogical gains from obscure or uncontrolled associations. Examine the fund manager's background, asset quality, and financial ratings as part of your due diligence. Credibility guarantees both your star's safety and steady gains. Choose government-approved or SEBI-registered plans wherever possible.

9. Premature Withdrawal Conditions

Because life is inconsistent, you might need to take money out of your account before it matures. For this reason, it's critical to comprehend the scheme's early departure regulations. For example, early withdrawals from Post Office MIS are permitted after a year, but there are charges associated with doing so. Annuity plans might not permit withdrawals at all; however, certain mutual funds permit partial redemptions. You may prepare for extremities by getting familiar with this language beforehand. When opting for a plan that fits your financial demands and life, flexibility is critical.

10. Diversification

Still, you risk losing focus if you simply appoint one type of earnings plan. Instead, make a different portfolio using more than a few mediums, inclusive of a government-backed plan, a mutual fund, and a fixed deposit. This protects you against underperformance in any one plan, allows you to manage troubles and rewards, and continues a regular earnings stream. Diversification also offers you greater control over your taxlegal responsibility. When you have the right stability, you may have a constant monthly profit without compromising the growth of long-term wealth.