What in case you lose your job or suffer a business loss due to slowdown in market? Having passive income or second monthly income is always advisable to overcome from these uncertainties. Passive income or regular monthly income does not only safeguard you in your working life but also provide a financial support after your retirement.
Monthly Income Scheme to Invest
1 Systematic Withdrawal Plan
Investing aggressively in equity oriented mutual fund and then start a systematic withdrawal is a good source of regular monthly income. One can invest a lump-sum amount in equity fund/s and can start a fixed or increasing redemption at regular interval after one year to avoid taxation. For example invest Rs.10 lakh at once in fund/s having track record of giving 10% to 12% return per annum and then start withdrawing Rs.10,000 per month after one year. This monthly income would run approximately for 20 to 25 years (rough estimation).
Systematic Withdrawal Plan is one of the best ways to channelize the savings into a handsome monthly income. However, it is amongst the riskiest investment scheme to consider for monthly income. Only young investor having high risk appetite should go with it.
2 Bank Fixed Deposits
Monthly Interest Payout Fixed Deposits is one of the risk-free ways of earning passive monthly income. However, the interest is paid on the discounted rate which is below the normal fixed deposit rates. For example, (hypothetical situation) a monthly interest FD would fetch you 0.50% per month i.e. 6% per annum against 7.5% per annum if FD is put for whole year. Interest rate is directly related to the tenure of the fixed deposit, higher the tenure thicker the interest rate. The monthly interest is subject to TDS if it exceeds the threshold limit of Rs.10,000 per annum.
Not all banks offer monthly payout of interest, only few banks provide monthly income scheme including ICICI, Bank of Baroda, Union Bank of India, Punjab National Bank, Kotak Mahindra Bank, Yes Bank and Axis Bank.
3 Monthly Income Plans (MIP)
Monthly Income Plans refer to open ended debt oriented mutual funds which invest 75% to 80% into debt instruments like high rated corporate bonds, G-secs, debentures etc. and remaining 20% to 25% in equity and cash. The returns aka dividend from MIP is not limited to monthly payout, you can also opt for quarterly, half-yearly or yearly payout plan.
The dividend declared is not taxable in the hands of investors, the Asset Management Company is liable to pay the tax on the dividend declared. For example if dividend of Rs.5 is declared than 85 paisa (16.995%) is paid by AMC as Dividend Distribution Tax (DDT) and remaining Rs.4.15 is paid out as dividend but once the dividend is paid out, NAV of the mutual fund unit is adjusted according to it i.e. get down by Rs.5. However, Capital Gains from selling of mutual fund units attract tax.
Please not that monthly income plans may or may not provide guaranteed monthly income. Sometimes due to bad performance of the Fund, dividend is not declared at all because dividend can only be paid out from the profits and not from the capital.
4 Post Office Monthly Income Scheme (POMIS)
Post Office Monthly Income Scheme is a six-year small savings scheme offered by Post-Offices. The account can be open with minimum investment of Rs.1,500 singly or jointly. The upper cap of investment in POMIS is Rs.4.50 lakh for individual account and Rs.9 lakh for joint account.
Currently POMIS gives a guaranteed return of 7.80% per annum which is paid out monthly and is not liable for TDS. For example Rs.9 lakh in POMIS fetches monthly income of Rs.5,850. In addition, after maturity investor would get five percent bonus on the invested amount which is also not liable to TDS. Investor is required to add interest income and bonus into his income and pay tax accordingly.
Read: POMIS at Glance
One can leave the deposited amount for two more years after maturity to earn returns similar to savings bank account. Premature closure of account is allowed but only after one year and that too with penalty of 2% of the deposit amount if account is closed between 1 to 3 years and 1% of the deposit amount if account is closed beyond 3 years. Also, prematurely closed account is not entitled to get bonus.
5 Pension Plans or Annuity Plans
Pension Plans or Annuity Plans are designed to cater your retirement life. There are two types of pension plans i.e. Deferred Pension/Annuity Plans and Immediate Pension/Annuity Plans. Deferred Pension plan consist of two phases, first one being the accumulation phase where your premium gets accumulated over the period and invested in n securities approved by the Insurance Regulatory and Development Authority (IRDA ), the insurance regulator. Second phase is distribution phase where you start getting regular return from your investment kitty. The vesting age or distribution phase usually starts at the age of 50 years and you can withdraw up to 33% of the accumulated amount at once and the rest is paid in pension. National Pension Scheme by Government of India is one such pension plan which offers additional tax benefit of Rs.50,000 u/s 80C.
Read: APY vs EPF?
Immediate pension plan works like bank fixed deposit where you invest lump-sum amount at once and start getting pension immediately. The frequency of pension could be monthly, quarterly, half-yearly and yearly. LIC Jeevan Akshay VI is an example of immediate pension plan.
6 Reverse Mortgage Loan
Reverse Mortgage Loan means redeeming your real estate property over the period. Under Reverse Mortgage you can start a regular monthly income by putting your house or any other house property with the bank and at the end of tenure bank get possession of the house. You can get maximum of 60% of the value depending on your age group for tenure up to 20 years. The property is required to be valued in every 5 years. After that bank get the authority to sale the house and realize the loan amount, if any surplus remains from the sale proceeds than the same shall be given to the legal heirs.
|Age Group||Loan to Value Ratio|
|60 to 70 years||45% of the Value of the Property|
|71 to 75 years||50% of the Value of the Property|
|76 to 80 years||55% of the Value of the Property|
|Above 80 years||60% of the Value of the Property|
Reverse Mortgage Loan can only be availed by senior citizen i.e. individual aged 60 years or above with a residential house property having clear title indicating the borrower’s ownership of the concerned property. The reverse mortgage loan can be availed lump-sum or as monthly income.
7 Rental Income
In case you have some serious idle cash with you than you can invest in real estate to get an additional monthly income in terms of rent or lease. The rental income depend totally on the location or type of the property you buy however, a well-maintained property tends to get maximum return.
There is a dual benefit of investing in real estate i.e. first you get regular monthly income and second over the longer time period real-estate tends to give multifold returns.