If you are looking for a safe investment option that will earn you decent returns, then you should consider one of the post office schemes. The post office monthly income scheme (POMIS) is not well-known among investors in the urban parts of the country. The population in urban India looks to invest in fixed deposits and other debt options for generating monthly incomes or even to just park their money. But the monthly income scheme offered by the Indian postal service, although lesser-known, offers a bouquet of benefits to the investor. It should be noted that the post office is still one of the largest banking service providers in the country. As it is governed by the Ministry of Finance, it is also associated with greater credibility than other investment avenues.
Monthly Income Scheme (MIS) is an investment scheme that promises the investor guaranteed returns at an interest rate of 7.7% per annum. These returns can be availed as fixed monthly income. The most experienced of investors consider MIS to be one of the best options to invest funds in, as it provides the customer benefits of three kinds:
- MIS keeps the capital intact.
- It ensures that the customer receives a fixed monthly income.
- It yields better returns than instruments that are debt-based.
Key Features of Post Office Monthly Income Scheme:
The maturity period for the Monthly Income Scheme is 5 years. So, the customer should ideally withdraw the amount after this duration. At the end of the term, the customer will receive all the funds that were invested in the scheme. He/she will also receive the benefit of the fixed monthly income for the complete duration.
If the customer is compelled to withdraw the funds before 5 years, the following benefits will be payable:
- Deposit withdrawal within 1 year - The customer receives no benefits.
- Deposit withdrawal between 1 and 3 years - The customer receives the entire deposit after a nominal deduction of 2% as penalty.
- Deposit withdrawal after 3 years - The customer receives the entire deposit after a nominal deduction of 1% as penalty.
Other significant features of the scheme include the following:
- The investment is absolutely risk-free.
- The customer can choose to nominate another individual to receive the benefits in the event of his/her unfortunate death.
- The scheme provides the option of a recurring deposit into which the funds can be moved.
- Even minors can invest in POMIS.
- The POMIS account can be transferred from one post office to another, absolutely free of cost.
- For every deposit the customer makes at the post office, a separate account will have to be opened. The advantage here is that one person can open multiple accounts, up to the maximum possible account balance limit of Rs.4.5 lakh. This is the total amount that can be invested by the customer, including his/her share in all joint accounts.
- The maturity amount that is received at the end of the investment term can be reinvested in POMIS.
- There is no Tax Deduction at Source (TDS) for this scheme. However, the interests earned through the investment in the scheme are taxable.
- The amount that is invested in POMIS is not eligible for tax rebates under Section 80C of the Income Tax Act, 1961.
- The account can be opened by a cheque or cash. In case the customer chooses to provide the initial payment through a cheque, the date of realisation of the cheque in the Government account will be the date of opening of the customer’s account.
- A joint account can be opened by two or three adults. All the account holders in the joint account have equal share. A single account can be converted to a joint account, if needed. The reverse is also possible.
How Post Office Monthly Income Scheme Works?
The process of investing in POMIS can be done easily and requires minimal documentation. The investor will be required to submit a copy of his/her identity proof, an address proof, and some passport size photographs. The ID proof can be the passport, ration card, PAN card, or voter identity card.
At the beginning, the customer is required to open an account, either on an individual basis or as a joint account. The table below shows the minimum and maximum funds that can be invested in the post office monthly income scheme:
|Lower Cap||Upper Cap|
Let us analyse the investment process in MIS through an example:
Suppose Mr.X invests Rs.1 lakh in the scheme, with a maturity period of 5 years. At the annual interest rate of 7.7%, he will receive a fixed monthly payout of Rs.641.66. At the end of the investment term, i.e., 5 years, he will get back the amount he deposited. This money can be withdrawn in two modes, i.e., he can either receive it directly from the post office or as a credit in his savings account through ECS. This amount can be withdrawn on a monthly basis; however, if desired by the customer, he can allow it to accumulate over a period of few months and then withdraw the accrued amount. The latter option is not very lucrative, as the accumulated funds do not earn any interests.
A new feature has now been added to POMIS in order to make if more effective, in terms of returns. The customer can associate the account with a recurring deposit. Hence, the interest earned on the scheme can be invested in the recurring deposit on a monthly frequency. This is a great way to let your money grow, while still staying invested in the scheme.
Eligibility Conditions for Post Office Monthly Income Scheme:
The post office monthly income scheme has been specifically designed for investors who are averse to risks (implying a reluctance to invest in equity instruments), but however, are looking for fixed monthly payouts. Investors in this scheme are hence, usually found to be people in retirement or senior citizens.
- The only prerequisite to be able to invest in this scheme is that the customer should be a resident of India. NRIs cannot avail the benefits of this scheme.
- The minimum age limit for entry into the scheme is 10 years.
- The maximum amount that a minor can invest in POMIS is Rs.3,00,000.
Monthly Income Scheme versus Monthly Income Plans:
Customers often confuse the monthly income scheme with the monthly income plans that are associated with mutual funds and insurance. The key differences between the three are highlighted in the table below:
|Monthly Income Scheme||Monthly Income Plan (Mutual Funds)||Monthly Income Plan (Insurance)|
|The post office monthly income scheme provides a guaranteed monthly income at an annual interest rate of 7.7%.||The monthly income plan is a mutual fund in which the money is invested. The investments are in the ratio of 20:80 for equity-debt instruments.||This is a type of retirement plan in which annuities are paid to the customer on a monthly basis.|
|A guaranteed monthly income is provided.||Monthly income is not guaranteed for investments in mutual funds. The returns depend on the earnings for that specific period.||Monthly income is guaranteed and is a fixed amount. It is based on the premiums paid during the policy tenure.|
|TDS is not applicable. However, there will be taxes levied on the interest earned.||TDS is not applicable.||The monthly annuity is taxable.|
|MIS is suited for investors who cannot afford to take risks.||MIPs are suitable for investors who do not have a great risk appetite, and stay in between the safe debt funds and the risky equity funds.||These plans are for investors who prefer the dual benefits of investment and insurance.|
|After a locking period of 1 year, the investor can withdraw the funds with a minimal penalty of 1-2%.||The investor will be charged 1% exit load if the units are cashed within 1 year, post investment.||As this is a long-term plan, the investment tenure is quite long. The insured will have to bear surrender charges for withdrawing the amount before the completion of the policy term.|
|The limits for investing in POMIS are, Rs.4.5 lakh for an individual account and Rs.9 lakh for a joint account.||There are no limits for the investment in MIPs.||There is no limit on the amount invested.|
|The returns are at a fixed rate of interest.||The returns from MIPs are not fixed. They are quite volatile, as they can rise to 14%, and plunge negatively, based on the market fluctuations.||The monthly income insurance plans are intended to secure the capital and insure the policyholder. So, returns are not the priority here.|
Post Office Monthly Income Scheme FAQs:
1. What happens when the customer invests more than the prescribed limit?
A. In the event of a breach of limit, the post office will ask the customer to withdraw the additional amount immediately. For the time period between the deposit of the excess amount and the withdrawal, the investor will be paid only the post office savings account interest rate for the excess amount.
2. What happens when the investor does not withdraw the funds after 5 years?
A. If the amount and the interest is not withdrawn after 5 years, then that account will earn a simple interest (as per the post office savings account interest rate) up to 2 years. Following this, the final amount will be kept idle, until withdrawn.
3. When can the depositor assign a nominee?
A. The customer can assign a nominee, either at the time of initial investment or during the term of the scheme. In case the depositor wants to nominate after the account is opened, then he/she will be required to submit an application to the concerned post office.
4. What happens at the death of the depositor?
A. In the event of death, the nominee of the investor must close the account. He/she is not allowed to continue investing in the account. The amount that has been deposited, along with the interest accrued (up to the preceding month) is paid to the nominee.
5. How is the interest payable?
A. There are three ways in which the interest can be availed:
- The interest will be automatically credited to the savings account with the post office.
- The depositor can request for interest withdrawal every month. He/she will receive the amount either as cash or through a cheque, as required.
- The interest can also be availed through post-dated cheques. The validity of the cheque will be 3 months from the date of issuance. However, this facility can be availed only if the cheque amount is greater than Rs.100. If the depositor has lost the cheque, he/she will have to sign an indemnity bond for duplicate cheques to be issued. It should be noted that the validity period of the cheque and a month of reconciliation time should have elapsed before the duplicate cheque is issued. If the depositor initiates a pre-closure of the account, he/she will have to return the unused cheques with a penalty of Rs.4 per cheque. If the depositor faces death, the nominee will have to return these unused cheques, but will not be required to pay any penalty. If the post-dated cheque option is chosen for availing interest, the account holder receives the final amount (after 5 years) through the cheque only.
6. What happens when the interest payout date is on a postal holiday?
A. In such a case, the interest will be credited on the immediately preceding working day.
7. Is any bonus paid at the time of maturity?
A. Currently, no bonuses are paid at maturity of the scheme. However, for accounts that were opened between 8th December 2007 and 30th November 2011, there was a 5% bonus offered at maturity.
8. What happens when a depositor who holds a joint account faces death?
A. After the death of a joint holder, the account is treated as a single account held by the surviving account holder. Then the account will continue, as per the maximum limit of the surviving depositor’s investments in the scheme. If the post office finds excess deposit at this time, the surviving depositor will have to withdraw the same immediately.
9. Is the monthly interest automatically deposited to the post office recurring deposit (RD)?
A. No automatic deposit will not be done. The interest from the monthly income scheme is first moved to the post office savings account. Subsequently, the investor can deposit this amount into the RD account.
10. Is the amount deposited in POMIS liable to wealth tax?
A. The amount that is invested in the post office monthly income scheme is exempt from wealth tax.
GST of 18% is applicable on life insurance effective from the 1st of July, 2017