Life is uncertain, and so is everything else related to it. When you don’t have a regular source of income, but you happen to have a large amount of cash in hand, you can get confused about how to plan your financial future.
Considering investments is the best possible answer to this question. As you don’t have a fixed income, you can consider investing your money in a monthly income plan and scheme. That way, your lump sum money will be safe, and you will get to enjoy the fruit of interest. Below are the ten best investment plans that generate a regular income.
Bank Fixed Deposits
Bank Fixed Deposits are a risk-free way to earn regular monthly incomes. Fixed deposits are the best investment plan for those who do not wish to take risks. FD offer better returns than savings accounts but lower than mutual funds. The interest rates on fixed deposits vary depending on the amount of investment, the tenure and bank policies, however, one can earn up to 8%- 9% from fixed deposits in general. Income in the form of interest from fixed deposits is taxable under ‘Income from other sources’.
Post Office MIS
The Department of Post, India offers the Post Office Monthly Income Scheme. In this scheme, a person can invest up to 4.5 lakh in a single account or up to 9 lakh if having a joint account. The annual interest rate is 7.3%, and the interest is paid monthly to the investor. Like bank FDs, POMIS is also a risk-free investment, just like bank FDs. MIS scheme has a maturity period of 5 years while you can withdraw prematurely after the completion of 1 year with 2% deduction. Income from MIS schemes is taxable.
Senior Citizen Saving Scheme
As the name suggests, this scheme is for senior citizens, i.e. persons older than 60 years. SCSS is offered by Post Office. However, people who opted for VRS and are older than 55 years, or defense personnel who are retired and older than 50 years are also eligible for this scheme. In this scheme, an annual interest of 9% is offered and paid every three months.
This is the best investment plan for a senior citizen that is risk-free. The scheme has a maturity period of 5 years. Income from Senior Citizen Savings Scheme is tax-exempt up to Rs.50000 per annum.
Pradhan Mantri Vaya Vandana Yojana
The PMVVY is a relatively new scheme that came into existence in July 2017. This scheme, designed as a pension scheme for senior citizens, offers a guaranteed interest rate of 8% per annum. The limit of the investment amount was Rs. 7.5 lakhs initially, but after the Budget 2018, it is proposed to be increased to Rs. 15 lakhs. The interest amount is paid monthly/quarterly/half-yearly/yearly as chosen by the investor and the maturity period is 10 years.
Long term government bond
Unlike the schemes mentioned till now, this option is not a risk-free one, though the risk factors are relatively lower than other investment options. In long-term government bonds, you will get paid the interest amount only yearly though, or in some cases half-yearly. As the name suggests, you’ll have to invest your money long-term, i.e. for 10-20 years to gain good returns. You can withdraw before the maturity period, which is subject to penalty.
Debt mutual funds with dividend options
Like government bonds, debt funds are also low-risk options for investment, but not risk-free. The interest rate keeps changing from 6% to 10%, depending on the market. Though they do not offer monthly income, they can be a good source of regular income in the form of dividends. They are also tax-free, so people in the higher tax brackets can be benefitted from these types of investments.
An annuity is one of the best investment plans for retired individuals. In an annuity, an investor invests a lump sum amount and then earns income in a specified period regularly. Annuity plans offered by insurance companies give good returns with low risks. Annuity plans offer no tax benefits and any income generated from annuity plans are taxable.
Monthly Income Plan of Mutual Funds
MIP mutual funds are suitable for people with medium risk bear ability. In these types of mutual funds, regular income is generated from dividends. Your money is generally invested in a 30%- 70% ratio between equities and debts. As most of the sum is invested in debt instruments, it lowers the risk factors as much as possible.
Investors can expect 20% or more returns from MIP mutual funds, subject to fluctuate depending on market conditions. The maturity period is 2-3 years in general. You must opt for the dividend payout option if you want a regular monthly income out of the MIP mutual funds. It is one of the best investment plans in terms of returns, but the risk factor is also higher when compared to other monthly income plans mentioned here. Returns earned from Monthly Income Plans of Mutual Funds are tax-free.
SWP with Mutual Funds
Systematic Withdrawal Plans of Mutual Funds is another great option for generating a regular income. In SIP or Systematic Investment Plan you have to invest a fixed amount on a fixed date every month, and in the case of SWP, the opposite happens, meaning you will get to withdraw a fixed sum of money on a fixed date every month.
You can choose any option of regular withdrawal, be it monthly, quarterly, half-yearly, or yearly. You can also choose to withdraw from your lump-sum investment a fixed amount, or only capital gains earned during a period of time. By selecting the second option, your lump sum amount will remain invested for a long time, and if you select the first option, then you can use the fixed withdrawal amount as per your needs. Systematic Withdrawal Plans are not tax-free.
Rent from Real Estate
You can invest your money in real estate, buy a house or apartment, and rent it. Rents increase by 10% every year, so your regular income will keep coming and keep increasing, while the capital amount in the form of the house or apartment will remain an investment. Though you should note that the value of a house or apartment depreciates with time. Income from rents is taxable.
Interesting Related Article: “Tips for Establishing a Monthly Budget“