11 Best Investments for Regular Income

There can be several situations when we look for regular income. This is especially true for people after retirement without any pension. Also there would be new entrepreneurs who need regular income until their start-up stabilises.

Why is regular income important?

Regular income is important as it gives a sense of security, a level of satisfaction that you need not worry about the future. You become less stressed if you know that you have a regular income to take care of your future expenses. It also disciplines your spending habits and helps in planning your next bit ticket purchases.

Regular income becomes especially important for people who are retired from salaried job as they always had a regular income and hence have that habit of seeing money credited to their account every month. To maintain the same level of comfort after retirement or starting a new venture, we tell you 11 investments which can generate regular income for you along with their pros and cons.

Bank Fixed Deposit

This is the most popular investment avenue for regular cash flows. You can choose to get the interest credited in your savings account every month, quarter or annually.

Expected Returns: 3% to 7% for General Public and 3.5% to 7.5% for Senior Citizens. This keeps on changing with interest rate cycle.

The Good:

  1. It’s convenient 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.

The Bad:

  1. The interest earned is taxable according to the income tax slab of the person
  2. TDS (Tax deduction at source) is deducted by banks in case the annual interest income exceeds Rs 10,000. 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. 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 to get rid of TDS (Learn to Fill Form 15G and 15H)

Get Highest Fixed Deposit Interest Rates

Fixed Deposit with Banks is one of the most popular and convenient investment option. To help you choose the best, we compare the interest rates on fixed deposit across all major 48 banks in India including government, private, foreign and small financial banks in India every month. This may prove to be quite handy for you in choose the Best Bank FD scheme.

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: 6.7% (revised by Government of India every quarter)

The Good:

  1. As in case of banks, there is no credit risk as Post offices are Government owned.
  2. The income is guaranteed.
  3. There is no TDS deducted on the interest paid.

The Bad:

  1. The investment tenure is limited to 5 years. After maturity you can invest again but at prevailing interest rates leading to reinvestment risk.
  2. Though no TDS is deducted, 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.Penalty on closure of account before maturity.
  4. Penalty on closure of account before maturity.

Sukanya Samriddhi Account + PPF + SCSS + POMIS Calculator

Sukanya Samriddhi Account, PPF, Senior Citizens’ Savings Scheme are part of small saving scheme sponsored by Government of India. These schemes are quite popular and rightly so because of the safety, higher interest rate offered among other things. We have built calculator for each of them where you can check the maturity amount, loan eligibility, partial withdrawal and more. Click on the links to get the relevant calculator – PPF Calculator, Sukanya Samriddhi Yojana Calculator, Senior Citizens’ Savings Scheme Calculator, NSC Calculator, Post Office MIS Calculator

Senior Citizen Saving Scheme (SCSS)

SCSS is again a popular investment option for senior citizens. The interest is paid out Quarterly in the bank account.

Expected Return: 7.7% (revised by Government of India every quarter)

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.
  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.
  4. TDS is deducted @ 10% of interest paid in case the annual interest is more than Rs 10,000 in a financial year
  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.

Senior Citizens’ Savings Scheme: An Excellent Investment

Senior Citizens’ Savings Scheme or SCSS is an excellent investment for senior citizens for regular income and tax saving u/s 80C. It is 100% safe as its backed bu Government of India, the interest paid is generally higher than bank fixed deposits and the investment is eligible for tax saving u/s 80C. We explain the eligibility, process and do’s & don’ts of SCSS in this post.

Company Fixed Deposit

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 (Tax deduction at source) is deducted by companies in case the annual interest income exceeds Rs 10,000. 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)

Company Bonds (NCDs)

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 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.

Learn All about NCDs

NCDs or non-convertible debentures or more popularly known as Bonds are a bit complex investment products. You must understand the product, risk involved, the taxation on interest received and when you sale it. We have done a separate post regarding this titled – Know all about NCDs.

Also you can keep track of upcoming NCD issues here.

Investments to Generate Regular Income
Investments to Generate Regular Income

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. These bonds can be bought in secondary markets through Demat account or when companies open bonds for initial subscription. There has been no fresh issue for last few years.

Expected Return: 4.00% – 5.00% (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.

Useful Tips:

  • Some companies offer Tax Free Bonds subscription in physical form too.
  • Selling tax Free Bonds before maturity leads to Capital Gains and is taxed accordingly.

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Government Securities/Bonds (G-Secs)

G-Secs are government bonds issued by RBI on behalf of Government of India. These bonds have tenure of up to 30 years and have no Credit risk. They pay interest every 6 months.

Expected Return: 5% – 6% (depending on tenure) changes with interest rate cycle

The Good:

  1. No Credit risk
  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. Liquid – Can be easily sold
  5. No TDS on interest earned on G-Secs
  6. 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.

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.

Expected Return: 4% to 6% (depending on age and type of annuity selected). Higher aged person would get get better returns.

The Good:

  1. Annuties 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.

Pradhan Mantri Vaya Vandana Yojana (PMVVY) ★ Good Pension Plan for Senior Citizens

LIC Pradhan Mantri Vaya Vandana Yojana (PMVVY) is an excellent investment plan for Senior citizens. You can invest up to Rs 15 lakh and get Rs 9,250 every month for 10 years. The principal amount i returned back at the end of 10 years. You can know about how to invest in PMVVY in this detailed blog post.

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 large.
  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.

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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.

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.

How SWP in Mutual Funds is better than FD?

Fixed deposit with banks are the most popular investment option for regular income. Systematic Withdrawal Plan (SWP) in debt fund is one such option which people looking for regular income must evaluate. We have shown the details with all the calculation on Who should invest in Systematic Withdrawal Plan Vs Fixed Deposit.

Dividend Income

You can plan regular income through portfolio of stocks and equity mutual funds. The problem is the dividend can fluctuate every year. Also the payout is not very regular and depends on the performance of the company.

The Good:

  1. The portfolio can have capital appreciation in the long run.

The Bad:

  1. Dividends are taxable at your income tax slab rate.
  2. The prices of stocks are volatile and so the portfolio can fluctuate a lot in value.
  3. The income is not guaranteed. Even stock with long term dividend history can skip dividend in certain years.
  4. Should have good skills to select stocks and need to continuously monitor the investment.

How Tax on Mutual Funds Impact your Returns?

Equity Mutual Funds are one of the best investments to generate wealth in the long run while Debt mutual funds are more suited to park money for the short term (as an alternative to fixed deposits). But as in case of any investment, the final returns are determined on the way these Mutual Funds are taxed. We discusses tax on mutual funds & its dividends in all details.

Regular Income FAQs

✅ How to earn regular income from stock market?

Some people claim to earn regular income from Stock Market but its very risky idea. The risk is so high that if not planned carefully, you may wipe out your entire life savings.
People usually do “day trading” where in they invest in the morning and cash out at any time as the prices go slightly higher – so as to cover their brokerage cost and some marginal profits. I would strictly recommend to keep out as this is risky and very stressful way.
There is a simpler way to earn regular income from stock market. That is by investing in good long term stocks or Mutual Funds and get income from the dividend paid. The only pitfall is the dividend may not be very regular and is not fixed.

✅ How to get regular income from mutual funds?

There are two ways to get regular income from Mutual funds:
1. Dividend Income: You can invest in high yield dividend mutual funds and get dividends every quarter. These dividends usually go on increasing year on year as the fund performs well. However the pitfall is the dividend may not be very regular and is not fixed.
2. Systematic Withdrawal Plan in Debt/Arbitrage Mutual Funds: In this case you invest certain amount and withdraw a fixed amount every month automatically. This a good way of generating regular income especially for retired senior citizens.

✅ How to get regular income from Investments?

You can get regular income from following investments:
1. Interest Income from Bank Fixed Deposit, Post Office MIS, Senior Citizen Saving Scheme, Bonds, etc
2. Dividend Income from Stocks & Mutual Funds
3. Systematic Withdrawal Plan in Debt/Arbitrage Mutual Funds
4. Rental from Real Estate
5. Annuity Income like Pradhan Mantri Vaya Vandana Yojana
6. Reverse Mortgage

✅ How to get regular income from LIC Plans?

Here are some LIC regular income plans:
1. Pradhan Mantri Vaya Vandana Yojana: This can be purchased by senior citizens only and gives a monthly, quarterly, half-yearly or annual income.
2. LIC Jeevan Akshay – VII
3. LIC New Jeevan Shanti

To Conclude

As you can see there are various investment avenues available for generating regular income. You should evaluate each of them and see what suits you the most. It would depend on your risk appetite, duration for which you require regular income and the pain you want to take in handling investments. Ideally you should diversify among various asset classes to minimize risk.

Over to you, share with us how do you take care of your regular income?

9 thoughts on “11 Best Investments for Regular Income”

  1. Amit, can you please tell what are the safe options for people in foreign countries to invst in ? not fot NRIS nut for citizens of other countries.?

  2. I am staying in my own flat from 2011,built in 2001.As a Senior citizen the property value is around Rs.20 L. Need your input of reverse mortgage to facilitate monthly income to say for 15 years.

    1. The bank may give reverse mortgage for 75% of home value. At around 7% interest you would be paid monthly Rs 13,500 for 15 years. However the terms vary from bank to bank. So for exact figures you need to contact them!

  3. Hi Amit,
    Can you suggest names of some mutual funds with better returns for 10yrs as investment horizon also taking in consideration the tak benefit. I can invest upto 6k per month.

    1. Hi Amit,
      Can you suggest names of some mutual funds with better returns for 10yrs as investment horizon also taking in consideration the tax benefit. I can invest upto 6k per month

      1. Mr. Amit has shared an article for best ELSS for 2017. you can check this link. https://www.apnaplan.com/best-elss-fund/

    1. Agreed. I would also consider Arbitrage Funds to be a safer bet, especially for those who have very little or no assets of their own, and those who’s yearly income is below 3 lcpa

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