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Monthly income scheme: Overview, features, and benefits

dateKnowledge Centre Team dateJanuary 27, 2021 views180 Views
Monthly income scheme: Overview, features, and benefits

Monthly Income Schemes are largely debt-oriented, and more than 70 per cent of its fund runs into debt funds. The remainder of the fund is then invested into stock options. The principal aim behind it is to get stable returns through equity whenever feasible.

What is a Monthly Income Scheme?

Typically intended for conventional risk-averse investors and beneficiaries, a Monthly Income Scheme is an investment option that invests funds primarily with lower-risk securities. Those who desire to generate an alternative source of regular monthly earnings this serves as a regular source of income as well as act as a saving plan. The income produced through Monthly Income Schemes is mostly in the form of dividends and interest.

However, a monthly income scheme does not extend a set revenue rather, like other market reliant investment options, returns are administered by the profit generated. The monthly income scheme approach is mainly debt-oriented as more than 70 to 80 percent of its capital goes into debt funds, while the rest goes into stock options. This is executed to receive steady returns and profit on the investment whenever feasible with the help of equity exposure.

What are the Important Features of Monthly Income Schemes?

The following are characteristics of the best monthly income scheme that makes it a worthwhile investment option for risk-averse investors –

  • Zero limits: The scheme is resilient and does not arise with a higher limit on its investment amount. It enables anybody to invest in this scheme as per their capacity and need.
  • Open-ended choice: Monthly Income Scheme is an open-ended scheme. Individuals do not have to spend any processing cost as an entry load for accessing the scheme. Also, it comes with an exit-load that is less than 1% of the entire investment sum.
  • Liquidity: A Monthly Investment scheme is more liquid when associated with many other similar schemes. As there is zero lock-in period applicable to the investment, investors can decide to withdraw their capitals to meet an unexpected crisis.
  • Sounder returns: Profits generated through Monthly Investment Schemes are more reliable than conventional Post Office Monthly Income Scheme and fixed deposits.
  • Assured income: Investors are assured to earn secured returns every month, notwithstanding the sum diversifying quantum depending on the fiscal market.
  • Lower-risk: Monthly Investment Schemes are correlated with a lower risk factor. The capital is reinvested in low-risk securities like fixed-income instruments, preferred shares, and dividend stocks.
  • Professionally executed: Monthly Investment Schemes are handled by expert fund managers who are fully equipped to know the functioning of the investment market. They monitor schemes and determine all the 'when, how, and how much' when shifting funds to debts and equities.

What are the Types of Monthly Income Plans?

Here are two kinds of investment alternatives that can be categorised as the most suitable monthly income schemes. These investment schemes offer possibilities to receive dividends and stimulate wealth creation. The two types are as follows:

  • Dividend-oriented monthly investment schemes: The profits generated through these plans are in the form of dividends. No tax is charged on the dividend advanced to the individuals. Such dividends are given from the distributable surplus by the Annual Maintenance Charges and are given while the said fund is gaining profit from the market.
  • Growth-oriented monthly income scheme: With this kind of Monthly Income Scheme, earnings accumulated on the capital get appended to the invested sum. It promotes wealth creation simultaneously with corpus growth.

Why should you opt for a Monthly Income Scheme?

When you yearn to secure your family's financial future, you watch for numerous possibilities for creating an excellent portfolio. Appending a monthly income scheme plan to your portfolio grants you and your cherished ones the assurance that they will relish the protection for a long time.

The benefits extended by a monthly income scheme plan are as follows:

Fixed Income

A monthly income scheme for any family will be of great importance, as it presents you with a constant inflow of capital. In the absence of the bread provider or recurrent pay after retirement, these kinds of monthly pay-outs can extend assistance in meeting with recurring expenses and sustaining a good living standard.

Receiving payments at fixed periods presents a feeling of financial stability over time. The lump-sum money, on the other hand, may assist in extending prompt assistance. Still, it may get used up fast, which may leave financial safety in the future to be problematic again. In this way, the recurrent monthly income scheme can assure that your family can experience financial freedom without depending on others.

Tax Advantages

You invest in monthly income scheme plans principally to secure your family's future for a time when you may not have regular income after retirement or in your absence. However, some of the monthly income schemes also provide you with significant tax benefits both in the present and future.

For example, you can relish tax advantages if you invest in a Senior Citizen Savings Scheme. You can also avail tax reduction benefits of up to Rs. One lakh fifty thousand applicable under the provision of Section 80C of the Income Tax Act, 1961. Such tax benefits on a recurrent income scheme can reduce your tax liability significantly while keeping your family secure for the unforeseen future.

What is the tax implication of Monthly Income Plans?

A Monthly Income Scheme is responsible for taxation. Monthly Investment schemes apply to taxation. In the course of short-term capital gains (STCG), if people determine to settle off the units they were holding before three years, the accumulated profits will be reckoned to their income. The total amount will then be taxable as per their income slabs.

If people choose to liquidate or sell their investment after completion of 3 years, the long-term capital gains (LTCG) will incur a tax at the rate of 20 per cent. The fund organisations further charge a dividend distribution tax at the valuation of 25% before giving out the accumulated dividends. However, the dividends that the people will get at hand will not draw any tax liability.

Who should consider investing in a Monthly Income Scheme?

The classic combination of risk and return make the Monthly Investment scheme a worthwhile investment alternative for the retirees who have a restricted source of regular income. Canara HSBC Oriental Bank of Commerce Life Insurance presents Invest 4G - a savings plan to help you secure your life goals. Besides rendering them with an income source every month, this monthly investment scheme would also help retired pensioners prepare against any unfortunate losses or expenses. Additionally, investors who are reluctant to take a risk and tend to hold a conventional standpoint towards investments can invest their funds in the Monthly Investment Scheme.

People who belong to the higher tax slab can also invest in Monthly Investment Schemes for higher tax-efficiency. Whereas people who belong to the lower tax bracket and desire to enhance their earnings, can also regard this growth-oriented option of these monthly investment schemes. It will assist them in earning tremendous returns and helping them to decrease their incorporated tax burden.

Things to remember before investing in Monthly Income Schemes

Before investing your funds in a Monthly Income Scheme, people should consider a few factors that are mentioned below –

  • Their long-term and Short-term monetary goals they want to accomplish.
  • The Investment Time extent they are comfortable with investing their funds.
  • The pay-out options of the particular monthly investment scheme they are opting.
  • The premium that is given out of a Monthly Investment Scheme and its viability.
  • The extent of income or wealth creation of the monthly investment scheme.
  • Risk capacity and present financial holding at the time of availing the scheme.
  • Tax benefits offered on a monthly investment scheme.
  • Their prevailing lifestyle and suitability.

People should also analyse and take into account the present market situations before investing in the said schemes. Also, while investing in these schemes, you must consider your long-term financial goals. A higher percentage of interest rate can lead to a reduction in the Net Asset Value, which is why most experienced investors favour investing in the Monthly Income Scheme when the percentage of interest is high.

A monthly income scheme is a clever approach to relish financial solidity and security. Depending on your life goals and your family's needs, you may decide to opt for a monthly income scheme plan. As there are numerous Monthly Income Schemes available in the market these days, people should take special care before opting for a distinct monthly income scheme. People who plan to invest their funds in a monthly investment scheme should primarily evaluate their necessities and requirements as an investor.

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If you are looking for a guaranteed income plan, then saving plans should be on your list of investments that you are planning to make. Savings plan require you to invest a pre-decided amount on a regular basis. People with a regular stream of income who require a lump-sum amount after a period should opt for a savings plan. Working professionals, self-employed people and businessmen should consider a savings plan to meet their long-term financial obligations. Saving plans are also ideal for people who are risk-averse and want to accumulate funds through relatively safer mediums. These saving plans inculcate financial discipline in policyholders which make them crucial for every portfolio.

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A monthly income advantage plan ensures that you lead a stress-free life with your loved ones as it provides a life cover along with giving you guaranteed monthly income. In short, it is a life insurance and income plan that will financially secure commitments made to your loved ones. Canara HSBC Oriental Bank of Commerce Life Insurance Guaranteed Income Advantage Plan is a monthly income advantage plan that provides life cover for the entire term while you pay premium only for a limited period.

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