All you need to know about Monthly Income Schemes
Monthly saving schemes are ideally designed for risk-averse investors as it helps in saving funds primarily in lower-risk securities. As the name suggests, these schemes act as a regular source of income for those who want to have an alternate source of monthly income. The income from the monthly income schemes is usually in the form of dividends and interests. These do not offer any fixed income; instead, the return is overseen by the profit generated. Let’s now understand in detail the concept of Monthly Income Schemes.
Key Benefit of Monthly Income Schemes (MIS)
Below are the benefits of monthly income schemes best suited for risk-averse investors:
- No Investment Limit: Monthly Income Schemes does not have any upper limit on the amount to be invested. It allows investors to invest as per their requirements and capability.
- Open-ended Scheme: Monthly Income Schemes offers open-ended options in terms that the individuals are not required to pay any processing charges as an entry load for entering the respective scheme. In addition, these schemes come with an exit-load of less than 1% of the total investment amount.
- Better Returns: Monthly Income Schemes offer better earnings than traditional fixed deposits or even Post Office Monthly Income Scheme.
- Guaranteed Income: Investors are guaranteed to earn assured returns each month, despite the quantum of the sum varying depending on the financial market.
- Liquidity: Monthly Income Schemes do not come with any lock-in period on the investment and thus are more liquid than any other scheme. Investors can opt to withdraw their funds to meet his or her requirements during any unforeseen emergency.
- Managed by Professionals: Monthly Incomes Schemes are managed by professional fund managers who are experts in the field and in a better position to understand the functioning of the investment market. They monitor the schemes and decide on ‘when, how, and how much in terms of switching funds to debts and equities.
Who should invest in Monthly Income Schemes?
Monthly Income Schemes are ideal for retirees having the limited regular income option as it is a perfect mix of risk and reward. These schemes offer a source of income every month and help retirees to sustain a comfortable life while planning against any sudden expenses. In addition, monthly income schemes are a good option for those investors who have a traditional outlook towards investments and avoid taking risks.
Also, those belonging to higher tax brackets can consider monthly income schemes for higher tax efficiency. And those in lower tax brackets can opt for monthly income schemes to improve their scope of earnings by considering the growth-oriented schemes that will help them earn higher returns while reducing their tax burden.
Types of Monthly Income Schemes(MIS)
Monthly Income Schemes can be categorized into two types of investment options, offering opportunities to earn dividends and boost wealth creation.
- Growth-oriented monthly income plan: Under this plan, the accumulated earnings on the capital get added to the invested amount. It enables wealth creation along with the growth of funds.
- Dividend-oriented monthly investment plan: The earnings produced through dividend-oriented monthly investment plans are in the form of dividends which are paid when the respective funds earn profit from the market.
Tax implication of Monthly Income Schemes
As monthly income schemes are debt-oriented mutual funds, hence they come under taxation. Moreover, both long-term and short-term capital gains made through a monthly income plan are also liable for taxation.
In the case of long-term capital gains, if the investor decides to liquidate the investment after 3 years, then the long-term capital gain will sustain a tax at the rate of 20%. And in the case of short-term capital gain, if the individual plans to dispose of the units before 3 years, then the accumulated gains will be added to their income. The entire amount will then be taxed according to the respective income tax slabs.
The funds parked further levy 25% distribution tax before distributing the accumulated dividends. However, the dividends that individuals receive do not attract any tax.
Points to remember before investing in Monthly Income Schemes
Individuals should pay heed to the below-mentioned pointers before investing in monthly income schemes:
- Consider the short-term and long-term financial goals that they want to achieve.
- The premium of a monthly income scheme and its feasibility.
- Investors need to opt for a comfortable investment time period.
- The pay-out options of a particular scheme.
- Scope of wealth creation of the respective scheme.
- Tax benefits are offered under a monthly income scheme.
- Current financial status and risk appetite at the time of availing the scheme
- The current lifestyle and aptness of the investor.
Moreover, individuals should also consider the condition of the market before investing in the said schemes. For example, a higher rate of interest leads to a drop in the Net Asset Value, which is why most seasoned investors tend to invest in the Monthly Income Scheme when the rate of interest is high.
The endnote is that the market is filled with several monthly income schemes; therefore, the individual should carefully think through them before deciding on a particular monthly income scheme. Before investing in any monthly income schemes, an individual should first know their needs and requirements and then opt for their ideal scheme.