Monthly Savings: Invest Wisely, Grow Your Wealth

Investing your monthly savings is a great way to make your money work for you and build long-term wealth. There are various investment options available, each with its own benefits, risks, and potential returns. Here are some popular choices to consider:

- Post Office Monthly Income Scheme (POMIS): A government-backed investment option offering consistent monthly income with a five-year tenure. It provides a higher interest rate than FDs but has limits on the investment amount.

- Senior Citizen Savings Scheme (SCSS): A government-backed monthly income scheme exclusively for senior citizens aged 60 years and above, offering high returns with a five-year tenure.

- Monthly Income Plans (MIPs): Mutual funds that invest mainly in fixed income and a small portion in equities, providing regular payouts. MIPs offer flexibility and the potential for capital appreciation but do not guarantee returns.

- Government Bonds: Low-risk, long-term investment options with maturities ranging from 5 to 40 years. These bonds offer regular interest payments or coupon payments fixed by the government.

- Corporate Deposits: Offered by non-banking financial companies and housing finance companies, corporate deposits are similar to bank deposits but with higher interest rates and added flexibility. However, they are not as secure as bank deposits.

- Systematic Withdrawal Plans (SWPs): Allow investors to withdraw a fixed or variable amount from their investments at regular intervals, providing a steady source of income while preserving their capital.

- Guaranteed Income Insurance Plans: Life insurance policies that provide the option of receiving predetermined monthly payouts after the maturity period, offering financial stability during retirement.

- Mutual Funds: Provide a balanced mix of debt and equity instruments to achieve income and growth objectives. Mutual funds offer professional management, flexibility, liquidity, and potential for capital appreciation.

- Equity Share Dividends: Distribution of profits by companies to shareholders on a monthly basis, providing ownership in the company and a share of profits. Equity share investments also offer the potential for capital appreciation.

Post Office Monthly Income Scheme

The Post Office Monthly Income Scheme (POMIS) is a government-backed savings plan that offers a steady income stream. It is ideal for those seeking a safe and consistent source of monthly income. Here is a detailed overview of the scheme:

Features and Benefits

POMIS is a secure investment option, recognised and validated by the Ministry of Finance. It offers a competitive interest rate, currently set at 7.4% per annum as of January 2024. The interest is disbursed monthly, providing a regular income. The scheme has a maturity period of five years, and individuals can invest a minimum of ₹1,500, with the maximum investment limit being ₹4,50,000 for a single account and ₹9,00,000 for a joint account.

One of the key advantages of POMIS is its low risk. As a government-backed scheme, it ensures the safety of your investment until maturity, making it a good choice for risk-averse investors. The scheme also offers accessibility and convenience, as it is available across post offices in India.

Eligibility and Account Opening Process

To be eligible for POMIS, you must be a citizen of India and residing in the country. The minimum age requirement is 18 years, and minors aged 10 years and above can also open an account in their own name. To open a POMIS account, you must first have a Post Office savings account. You can then obtain and fill out the POMIS account opening form, submitting it along with the required documents (proof of identity and address, and a passport-size photo) at your nearest post office.

Reinvestment and Withdrawal Options

POMIS offers the option to reinvest your funds at the end of the five-year tenure. You can also withdraw your deposited amount either from the post office or by crediting it to your savings account through ECS. However, there is a penalty for early withdrawal before the completion of the maturity period. If you withdraw after one year but before three years, a 2% deduction is applied; if you withdraw after three years but before five years, a 1% deduction is applied.

Taxation

While income from this scheme is not subject to TDS or tax deduction at source, the interests earned are taxable.

Senior Citizen Savings Scheme

The Senior Citizen Savings Scheme (SCSS) is a government-backed retirement benefits programme for senior citizens in India. It offers a regular stream of income with the highest safety and tax-saving benefits. The scheme is available to those over 60 years of age, as well as retired civilian employees above 55 years and retired defence employees above 50 years. The minimum age requirement must be met within one month of receipt of retirement benefits.

The SCSS offers a fixed interest rate of 8.2% per year, payable quarterly. The maturity period is five years, but individuals can extend the maturity period for up to three more years by submitting an application in the last year. The minimum deposit amount is Rs. 1,000 and the maximum is Rs. 30 lakh. Deposits can be made in multiples of Rs. 1,000 and can be made in cash or by cheque, depending on the amount. The scheme allows for premature closure of the account, but with certain penalties.

The SCSS can be availed at select bank branches and post offices. Individuals can open more than one SCSS account, either by themselves or as a joint account with their spouse. However, joint accounts can only be opened with a spouse, and the whole amount deposited in the joint account is attributed to the first account holder. Non-Resident Indians (NRIs) and Hindu Undivided Families (HUFs) are not eligible to open an SCSS account.

Under Section 80C of the Income Tax Act, 1961, individuals are eligible for tax deductions on investments up to Rs. 1.5 lakh. If the interest earned exceeds Rs. 50,000 per annum, TDS will be deducted.

Pradhan Mantri Vaya Vandana Yojana

Benefits of Pradhan Mantri Vaya Vandana Yojana

The scheme offers an assured interest rate of 7.4% per annum for the financial year 2023-24, payable either monthly, quarterly, half-yearly, or yearly. The interest rate is higher than that offered by most fixed deposits, making it an attractive investment option. The scheme also has a policy term of 10 years, as per the payment mode chosen by the pensioner. On survival of the pensioner to the end of the policy term, the purchase price along with the final pension instalment is payable. Additionally, the scheme allows for premature exit under exceptional circumstances, such as the treatment of a critical or terminal illness of the pensioner or their spouse. In such cases, 98% of the purchase price shall be refunded. The scheme also offers a loan facility of up to 75% of the purchase price after 3 policy years.

Eligibility and Investment Limit

To be eligible for the Pradhan Mantri Vaya Vandana Yojana scheme, individuals must be senior citizens aged 60 years or above. There is no maximum age limit. The maximum investment allowed under the scheme is INR 15 lakh per senior citizen.

How to Open an Account

The Pradhan Mantri Vaya Vandana Yojana account can be opened at any branch office of the LIC or online through their official website. Individuals will need to provide proof of age and identity, such as a PAN card or Aadhaar card, and passport-size photographs. While not specifically mentioned by the LIC, individuals may also be required to provide proof of income, address, and retirement.

Systematic Withdrawal Plans

A SWP is a facility extended to investors, allowing them to withdraw a fixed amount from a mutual fund scheme regularly. You can choose the amount and frequency of the withdrawal, and you can also just withdraw the gains on your investment, keeping your invested capital intact. At the set date, units from your portfolio are sold, and the funds are transferred to your account.

There are several benefits to SWPs. Firstly, you can choose the frequency of withdrawals, and you can also either withdraw a fixed amount or only the capital appreciation. This makes it ideal for investors seeking regular income from their investments. Secondly, there is no tax deducted at source with SWPs, although capital gains tax will be applicable, depending on the type of scheme and withdrawal amount. Thirdly, SWPs offer rupee-cost averaging, which means that if the markets are doing well and you have opted for a fixed withdrawal amount, fewer units will be redeemed compared to when the markets are low. This averages your returns and protects you from potential losses.

SWPs are a good option for those who need a regular cash flow to meet expenses and those who want to create their own pension. They are also useful for investors who are risk-averse, as they can invest in moderate or low-risk mutual fund schemes and receive only the capital gains as SWP.

Mutual Funds

Decide on your mutual fund investment goals

Are you investing for the long term, such as for retirement, or the short term, such as buying a house? If you're investing for the long term, stock mutual funds are a great choice as you will have time to weather the ups and downs of the stock market. If you're saving for the short term, a bond market mutual fund might be a better option.

Pick the right mutual fund strategy

If you are investing for the long term, your mutual fund allocation should be in stock-based mutual funds. You may want to look for "growth funds", which invest in companies expected to grow faster than others. These funds are riskier but offer the potential for large gains. If investing heavily in stocks makes you nervous, balanced mutual funds, which invest in both bonds and stocks, may be a better option.

Research potential mutual funds

When researching potential mutual funds, consider the following:

• Past performance: While not a guarantee of future success, a fund's past performance can indicate how well it is meeting its goals.
• Expense ratios: These are annual fees that compensate the fund's managers. The industry average is 0.57%, but you can find lower fees.
• Load fees: These are sales commissions charged by the broker. Try to avoid these if possible.
• Management: Actively managed funds aim to beat the performance of an underlying index and usually charge higher fees. Passively managed funds, or index funds, aim to duplicate the performance of an underlying index and typically charge lower fees.

Open an investment account

If you have an employer-sponsored retirement plan, such as a 401(k), you may already have access to mutual funds. If not, you can invest in mutual funds by opening a brokerage account and investing in individual retirement accounts (IRAs), taxable brokerage accounts, or education savings accounts.

Purchase shares of mutual funds

Make sure you have enough money deposited in your investment account. Keep in mind that mutual funds may have higher investment minimums than other asset classes. Also, note that mutual funds only trade once per day after the market closes, whereas ETFs and stocks can be bought and sold throughout the day.

Set up a plan to keep investing regularly

Investing is not a one-off event for most people. Set up recurring investments on a daily, weekly, or monthly basis to help grow your money. This will also help you pay less per share over time through dollar-cost averaging.

Consider your exit strategy

Eventually, you'll want to sell your mutual fund shares to pay for your financial goals. If you bought mutual funds with backend loads, you'll have to pay a fee to your broker when you cash out. You'll also probably owe taxes on any capital gains unless you held them in a Roth IRA or Roth 401(k).

Frequently asked questions