11 Investments to get Monthly Income in India

Generating regular monthly income with low risk is a priority for many especially people who have retired or new entrepreneurs who need regular income until their business stabilizes. In this post we list down 11 investments which can help you generate your required monthly income.

1. Monthly Income Scheme from Banks (SBI, ICICI, etc)

Monthly income schemes from banks are nothing but fixed deposit scheme where the interest is credited to savings account every month/quarter. This is one of the most popular investment avenue for regular cash flows. In case required you can schedule the interest payout at monthly, quarterly or annual intervals.

Expected Returns: 6% to 8% for General Public and 6.5% to 8.5% for Senior Citizens. This keeps on changing with interest rate cycle. Also Small banks offer interest rates up to 9% for general and 9.5% for Senior citizens.

The Good:

  1. It’s convenient and easy to invest and in most cases can be handled online.
  2. The credit risk is very low especially in case of Government owned banks and large Private Banks. However investors should be careful about cooperative banks.
  3. The income is guaranteed and does not change over the tenure of deposit.
  4. In case of emergency loan/overdraft up to 95% of the deposit can be taken.
  5. Additional 0.25% to 0.6% interest rate for senior citizens and respective bank staffs

The Bad:

  1. The interest earned is taxable according to the income tax slab of the person
  2. TDS @ 10% is applicable if the annual interest paid is more than Rs 40,000 [Budget 2019]. However eligible individuals can submit Form 15G/H avoid TDS.
  3. Reinvestment Risk – For most banks, the maximum tenure of bank fixed deposit is 10 years. So after 10 years you cannot be sure of interest rates offered. It may be much lower than what you were actually getting.
  4. There may be penalty on closure of account before maturity.

Useful Tips:

  • Prefer Government banks or large private banks for FD. Cooperative banks are risky and hence you should limit your exposure in these banks.
  • In case eligible, submit Form 15G/H while opening the deposit and start of every financial year (in April) to avoid TDS (Learn to Fill Form 15G and 15H

Also Read: Latest Bank FD Interest Rate comparison across 44 banks

2. Post Office Monthly Income Scheme (POMIS)

As the name suggests this is fixed deposit in Post Office on which you get regular monthly interest payment. The investment tenure is for 5 years only.

Expected Return: 7.7% (check latest Post Office MIS interest rate and other rules )

The Good:

  1. As in case of banks, there is no credit risk as the deposit is backed by Government of India
  2. The income is guaranteed.
  3. There is no TDS deducted on the interest paid.
  4. The interest rates are higher in case of POMIS as compared to government banks.

The Bad:

  1. The investment tenure is limited to 5 years and have no flexibility as in case of Bank MIPs. After maturity you can invest again but at prevailing interest rates leading to reinvestment risk.
  2. The interest earned is taxable according to the income tax slab of the person.
  3. Investing in Post Office schemes is not convenient. You need to visit Post Office to invest and to withdraw on maturity. This may be difficult for aged and also for people who change address frequently.
  4. Penalty on closure of account before maturity.
  5. The maximum investment limit is Rs 4.5 lakhs in case of single holder and Rs 9 lakhs for joint account. With present interest rates of 7.7% and deposit of 4.5 lakhs, you can get close to Rs 2,900 monthly. This is too low for any meaningful income.

Download: Ultimate Tax Saving Guide for FY 2019-20

3. Senior Citizen Saving Scheme (SCSS)

SCSS is very popular and a must have investment for senior citizens. The interest is paid out Quarterly in the bank account.

Expected Return: 8.5% (check latest SCSS Interest Rates)

The Good:

  1. There is no credit risk as the deposit is guaranteed by Government of India.
  2. The interest rate offered is higher than most banks.
  3. The investment up to Rs 1.5 lakhs in SCSS is eligible for tax deduction u/s 80C.
  4. The income is guaranteed.

The Bad:

  1. The interest earned is taxable according to the income tax slab of the person. Effective April 1, 2018 Interest income up to Rs 50,000 is exempted from tax for Senior citizens u/s 80TTB [Budget 2018]
  2. SCSS matures in 5 years. After maturity you can invest again but at prevailing interest rates. So it has reinvestment risk.
  3. The maximum investment is limited to Rs 15 Lakhs. With prevailing 8.5% interest rate and 15 lakh investment, the quarterly payout would be ~Rs 31,875. This alone may not take care of monthly  expenses. 
  4. TDS @ 10% is applicable if the annual interest paid is more than Rs 40,000 [Budget 2019]. However eligible individuals can submit Form 15H avoid TDS.
  5. Penalty on closure of account before maturity.

Useful Tips:

  • You can open another account in your spouse name if he/she satisfies all other criteria.
  • SCSS can be opened in approved banks or post office. You should prefer banks as you can have online facility and can handle account from different places.
  • In case eligible, submit Form 15G/H while opening the deposit and start of every financial year (in April) to avoid TDS (Learn to Fill Form 15G and 15H

Also Read: Know all about Senior Citizens’ Savings Scheme

4. Pradhan Mantri Vaya Vandana Yojana (PMVVY)

PMVVY is a pension plan launched by Government by India for Senior Citizens in May 2017 and is managed by LIC. The investor can buy PMVVY for a lump sum amount and can receive regular income for 10 years. The plan is available till March 31, 2020.

Expected Return: 8% (compounded monthly)

The Good:

  • The interest rate is higher than other pension plans from insurance companies.
  • The scheme is guaranteed by Government of India and is managed by LIC. So it has safety of highest level.
  • You can choose to receive pension monthly, quarterly, half yearly or annually
  • The premium is exempted from GST
  • The policy can also be surrendered before maturity for treatment of illness.
  • 75% Loan against policy can be taken, a good thing for emergency liquidity needs.

The Bad:

  1. The maximum investment limit is Rs 15 Lakh which would give a monthly pension of just Rs 10,000. 
  2. The pension you receive is taxable
  3. The investment is only for 10 years, leading to reinvestment risk after maturity.

Also Read: Know all about LIC Pradhan Mantri Vaya Vandana Yojana

5. Company Fixed Deposit (with regular payout)

There are NBFCs and Companies (both Government owned and Private) which offer fixed deposit schemes with monthly/quarterly or annual payment of interest.

Expected Returns: 8% to 9% (additional 0.25% to 0.5% for senior citizens)

The Good:

  1. The interest paid is generally higher than that offered by banks.
  2. The income is guaranteed.

The Bad:

  1. The interest earned is taxable according to the income tax slab of the person
  2. TDS @ 10% is deducted by companies in case the annual interest income exceeds Rs 5,000. This is especially painful for people who do not have income in taxable range. However eligible individuals can submit Form 15G/H prevent TDS deduction.
  3. The FD duration is generally 1 to 5 years. Some NBFCs offer tenure of up to 10 years. So there is reinvestment risk in the long run.
  4. You might need to fill forms and do KYC formalities, every time you make an investment. This is not as convenient as bank FDs.
  5. Premature withdrawal can have heavy penalty. Always look for the penalty clause before investing.

Useful Tips:

  1. Prefer Government organizations or high credit rated companies (AAA) as the credit default risk is lower.
  2. Invest only some part of your “regular income generating portfolio” in one company. Diversify across companies.
  3. In case eligible, submit Form 15G/H to get rid of TDS. (Learn to Fill Form 15G and 15H)

Also Read: List of High rated & Safe Company Fixed Deposits

6. Company Bonds (NCDs with Regular Payout):

Companies offer NCDs (commonly known as bonds) from time to time. NCDs pay fixed interest rates known as coupon. You can buy NCDs directly from NSE/BSE using your Demat account or apply for them whenever they are issued by companies. These NCDs pay interest directly in your bank account and it can be monthly/quarterly or annual.

Expected Returns: 8% to 11% (depending on credit rating)

The Good:

  1. The interest paid is higher than that offered by banks.
  2. The income is guaranteed.
  3. If you have Demat account, investment and selling can be done online.
  4. No TDS is deducted if the investment is done in demat form.

The Bad:

  1. The interest earned is taxable according to the income tax slab of the person
  2. The NCD duration is generally 3 to 8 years. So there is reinvestment risk in the long run.
  3. Though NCDs are listed on stock exchange and can be sold anytime but are thinly traded and so getting right selling price in case of emergency is a problem.

Useful Tips:

  • Prefer Government organizations or high credit rated companies (AAA) as the credit default risk is lower.
  • Invest only some part of your “regular income generating portfolio” in one company. Diversify across companies.
  • Some companies offer NCDs subscription in physical form too. In this case TDS is applicable.
  • Selling NCD before maturity leads to Capital Gains and is taxed accordingly.

Also Read: Know about latest NCD Issues

7. Systematic Withdrawal Plan in Debt/Arbitrage Mutual Funds

Systematic Withdrawal Plan in Debt funds can be efficiently used to generate regular income. These funds have returns similar to Bank FDs but are tax efficient in case the SWP is planned for more than 3 years. Arbitrage Funds can also be used in place of Debt Funds. The advantage of Arbitrage is the returns are tax free after one year.

Expected Return: Similar to Bank Fixed Deposit

The Good:

  1. The returns are more tax efficient than fixed deposits, so more suited for people in higher tax bracket.
  2. It’s easy to manage. Everything can be handled online.

The Bad:

  1. There is risk of capital running out in case the performance is lower than expected or if there is need to extend the regular income duration.

Also Read: Use SWP in Debt Funds to generate Regular Income

8. Annuity

Annuities are offered by Insurance companies. The insurance company pays a fixed amount every month in return for lumpsum investment. Returns vary depending on your age, gender and the type of annuity. Also all NPS (National Pension Scheme) subscribers have to necessarily buy annuity on withdrawal. LIC Jeevan Akshay Pension Plan, LIC Jeevan Shanti are some popular annuity plans from LIC.

Expected Return: 5% to 7% (depending on age and type of annuity selected). Higher aged person would get get better returns.

The Good:

  1. Annuities are easy to manage. Buying is one time process and you get money regularly paid in the bank account.
  2. The income is guaranteed.
  3. There is no reinvestment risk.

The Bad:

  1. Once you buy annuity you are locked in for life.
  2. Usually returns lower than bank FDs.
  3. The interest earned is taxable according to the income tax slab of the person.

Useful Tips:

  • As the money is locked for life, choose your options carefully.

Also Read: Should you Invest Rs 50,000 in NPS to Save Tax u/s 80CCD (1B)?

9. Rent from Real Estate:

Rental income from real estate is another popular option.

Expected Return: 1% to 4% rental yield for residential property and 5% to 12% for commercial property.

The Good:

  1. The rental return generally goes up with inflation.
  2. 30% standard deduction along with actual incurred expenses can be deducted from income for computation of income tax.

The Bad:

  1. Initial investment is big.
  2. Difficult to sell off at the right price in case of emergency.
  3. Need to be involved in regular maintenance of property.
  4. Income is not guaranteed as the property may remain vacant for longer period of time.

Also Read: How builders use super built-up area to deceive home buyers?

10. Reverse Mortgage:

Reverse mortgage is a special type of loan where you can get loan against your home. The loan is not paid in one go but in installments. You can think of it as reverse EMI. This is offered by a lot of banks and housing finance companies. Learn more about Reverse Mortgage by clicking here.

The good:

  1. Even though you mortgage the house, you can still live in it.
  2. Your legal heirs can pay the loan (after your death) to the bank and get back the house.

The Bad:

  1. You can outlive the reverse mortgage duration as most banks offer maximum tenure of 20 years.
  2. This option is available for senior citizens only.
  3. It involves lot of paper work.
  4. The loan amount is capped at Rs 50 lakh – Rs 1 crore by the lender. So it does not suit house owners with expensive houses.

Also Read: Calculate Income Tax for Senior Citizen with Salary, Pension & Interest Income

11. Government Securities/Bonds (G-Secs)

G-Secs are government bonds issued by RBI on behalf of Government of India. This is a popular investment for institutions but have very few transactions from retail investors. These bonds have tenure of up to 30 years and pay interest every 6 months.

Expected Return: 6.5% – 7% (depending on tenure) changes with interest rate cycle

The Good:

  1. No Credit risk as issued by Government of India
  2. Long investment tenure of up to 30 years, hence minimal reinvestment risk
  3. Investment can be done online through Demat account or IDBI Samriddhi G-Sec portal
  4. No TDS on interest earned on G-Secs
  5. Income is guaranteed

The Bad:

  1. The interest earned is taxable according to the income tax slab of the person
  2. The price of G-Secs fluctuates with change in interest rate regime. But if you hold till maturity it does not matter.

Also Read: Pensioners can claimTax Benefit for Rent Paid u/s 80GG

Best Monthly Income Plan in India

Best Monthly Income Plan in India

12. Tax Free Bonds

Tax Free Bonds are good source of regular income for people in higher tax bracket. As the name suggests the interest received is tax free. However selling bonds before maturity leads to Capital gains tax. Earlier these bonds were issued frequently but has not been done for last few years. These bonds can still be bought in secondary markets through Demat account.

Expected Return: 6.00% – 6.50% (Tax Free)

The Good:

  1. The interest paid is tax free, so it’s good for people in higher tax brackets
  2. The income is guaranteed.
  3. The tenure of these bonds is up to 20 years, so reinvestment risk is reduced to an extent.
  4. Tax Free bonds are issued by big PSUs and have high credit rating, so have negligible credit default risk.
  5. If you have Demat account, investment and selling can be done online.

The Bad:

  1. Most bonds have only annual payout option. This can be difficult for people who need monthly payouts.
  2. Its difficult to buy/sell these bonds from secondary market as the liquidity is very low.

Useful Tips:

  • Selling tax Free Bonds before maturity leads to Capital Gains and is taxed accordingly.

Also Read: Best Tax Saving Investments

To Conclude:

There are multiple investments which can help generate regular monthly income. The best investment depends on your risk appetite, duration for which you require regular income and the pain you want to take in handling investments.

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