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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 Benefits 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 –

1. Zero Limit

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.

2. 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.

3. 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.

4. Sound Returns

Profits generated through Monthly Investment Schemes are more reliable than conventional Post Office Monthly Income Scheme and fixed deposits.

5. Assured Income

Investors are assured to earn secured returns every month, notwithstanding the sum diversifying quantum depending on the fiscal market.

6. 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.

7. 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:

1. 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.

2. 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.

What are the features of the Best Monthly Income Scheme?

Monthly Income Schemes are now offered by many companies, but how to know which monthly income scheme is best for you? The best monthly saving scheme possesses the following features for you.

1. Reliability of Plan

You can judge an investment plan’s reliability through its track record and historical performance. This means the plan has to be performing for some time before you start investing. Five years is, usually, long enough age for you to judge the best monthly income scheme.

2. Long-Term Investment

If you are looking for a long-term income, the best monthly income scheme for you would be which allows such investment tenure. Usually, the monthly income schemes from life insurance companies offer 10 years to lifetime income options.

With the century option under Invest 4G, you can start investing any time after 18 and continue the plan for a lifetime.

3. Steady Income

When you want to draw an income from the invested sum, you would want the income to remain steady as much as possible. The best monthly saving scheme would be the one that provides a steady stream of income.

Such plans usually invest in low-risk or fixed income securities at least for the period when you start drawing the income.

4. Tax Benefits

The best monthly income scheme would be the one that offers tax savings at each step of the investment. Three stages of tax savings for any investment are – investment, accrued interest or growth and withdrawal.

Thus, the best monthly scheme will reduce your tax burden in the year of investment and offer tax-free income later.

How does a Monthly Income Scheme Work?

A monthly income scheme is a debt-focused scheme designed for people who do not like to take high risks. Here is how a monthly income scheme works.

Based on the style of investment you can invest in the following types of monthly investment schemes:

1. Monthly Investment Scheme with Regular Investment

Under this type, you need to invest money at regular intervals. Regular investment MIS have a vesting age when your income from the plan will start.

But the great part with this plan is that you can invest at your own pace to build a large enough corpus.

2. Monthly Income Scheme with Lump-Sum Investment

In this type of MIS, you make a one-time investment. It has the following types

  • Immediate income
  • Deferred income

The best monthly income schemes will allow the following modes of drawing your income from the plan:

  -  Fixed monthly, quarterly or annual income

  -  Growing monthly, quarterly or annual income

Plans like Invest 4G from Canara HSBC Oriental Bank of Commerce Life Insurance, allow you to withdraw your money systematically. With systematic withdrawals, you have the flexibility to choose a withdrawal amount every year.

Other monthly income schemes like Guaranteed Income4Life will offer a lifetime fixed or increasing income. Increasing income will help you keep up with the inflation in your regular expenses.

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:

1. 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.

2. Tax Advantages

You invest in monthly income 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 are the Eligibility Criteria for Buying a Monthly Income Scheme?

In general, you enrol in a monthly investment scheme after you turn 40. But in the case of ULIPs, if you are an Indian resident, you can invest any time after 18. But if you fall in the following categories, a monthly income scheme can benefit you the most:

a) You want to create a pension stream after retirement

b) You need an additional income stream without losing your savings

c) You want to support a dependent family member

d) You want to transfer wealth to the next generation

1. Duration

Monthly Investment Schemes have a maturity period of a minimum of 5 years.

2. Lock-In Period

The best monthly saving schemes do not have a lock-in period for starting income. Only ULIP plans have a lock-in period of five years.

3. Premature Withdrawal

In Monthly Investment Scheme, you can withdraw your money before maturity as well. However certain nominal charges (1-2%) of the Investment value can be charged at the time of withdrawal.

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 –

a) Their long-term and Short-term monetary goals they want to accomplish.

b) The Investment Time extent they are comfortable with investing their funds.

c) The pay-out options of the particular monthly investment scheme they are opting.

d) The premium that is given out of a Monthly Investment Scheme and its viability.

e) The extent of income or wealth creation of the monthly investment scheme.

f) Risk capacity and present financial holding at the time of availing the scheme.

g) Tax benefits offered on a monthly investment scheme.

h) 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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