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A Comprehensive Guide to Monthly Income Plans

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In today's fast-paced life, ensuring a steady stream of income is vital for maintaining a stable lifestyle. Whether you're planning for retirement, looking to supplement your existing income, or simply seeking a reliable investment option, monthly income schemes in India can be a game-changer.

These plans generally involve investing a lump sum amount in return for a fixed monthly payout over a specified period. The payout can be in the form of dividends, interest, or a combination of both, depending on the specific plan and its terms.

In this article, we will explore the ins and outs of the best monthly income schemes, their benefits, and how they can help you achieve your financial goals.

Understanding Monthly Income Plan

The concept of a monthly income plan revolves around receiving a regular sum of money on a monthly basis. Although the term "monthly income plan" is commonly used in the mutual fund industry, it is also referred to as monthly guaranteed income plans, assured monthly income plans, or monthly pension plans in the life insurance sector. It is important to note that there are slight differences between the monthly income plans offered by life insurance companies and those offered by mutual fund companies.

In the life insurance sector, monthly income schemes in India not only provide a regular income stream but also offer an insurance cover to protect the insured individual. Additionally, some of these plans may include a maturity benefit payment at the end of the policy tenure. 

This combination of income generation and insurance coverage sets these plans apart from the pure-play monthly income plans offered by mutual funds, which primarily focus on providing a monthly payout to investors. While mutual fund monthly income plans do not include an insurance component, some may offer the option of a lump sum payment. It is important to consider these distinctions when exploring the various options available in the market.

Features and Benefits of Monthly Income Plan

Listed below are some of the remarkable benefits of monthly income plans -

1. Guaranteed Regular Income

One of the most significant benefits of monthly income plans is the assurance of a regular income for insured individuals or their nominees. Regardless of market volatility, these plans ensure that a predetermined amount is paid into the designated bank accounts each month. 

This feature is particularly advantageous for individuals working in the private sector who may not have substantial savings in their pension funds. The certainty of income, coupled with potential bonus payments, makes monthly return investment an attractive option for those seeking financial stability.

2. Increased Payouts through Bonuses

The best monthly income schemes, including online options, often include bonus amounts that are typically paid at the end of the plan's duration. These bonuses may consist of reversionary bonuses, interim bonuses, and terminal bonuses. The reversionary bonus is declared by the insurance company annually as a percentage of the sum assured. 

Over the policy period, these bonuses can accumulate to a significant amount, providing policyholders with funds to meet major expenses such as home renovations or college fees. In the event of the insured party's demise, the bonus amounts are paid out to the nominees.

3. Insurance Coverage

Monthly investment plans provide insurance coverage to policyholders along with the option to add additional riders for specific protection. This coverage offers a secure safety net in case of unfortunate events. Optional riders can protect against income loss due to critical illnesses, accidents, disabilities, or the failure to pay premiums. 

Most monthly income plans offered by insurance companies combine the benefits of a guaranteed monthly income with insurance coverage. Moreover, these plans ensure that the sum assured and monthly payouts are provided to the nominees as per their preferences to ensure peace of mind.

4. Tax Benefits

Both online money income plans and traditional monthly return plans offer tax benefits under sections 80C and 10(10D) of the Indian Income Tax Act. These provisions allow policyholders to reduce their taxable income. 

Section 80C provides a deduction of up to Rs. 1.5 lakh, while section 10(10D) specifies that the payout must meet certain criteria to be eligible for tax deductions. It is essential for individuals to carefully consider the impact of premium amounts, sum assured, and payouts on their tax liability.

5. Future Control and Flexibility

Monthly income schemes in India offer flexibility in choosing payment options based on individual needs. You can select plans that provide payouts after retirement, allowing your investments to grow over time. 

Alternatively, you can opt for plans that initiate payouts while you are still paying premiums. This helps you to use the income for premium payments and invest the remaining funds in securing debt funds, ultimately increasing your overall asset base. Insurance providers such as LIC, SBI, and other companies offer a variety of payout options to cater to specific requirements.

When Should I Buy a Monthly Income Plan?

Keep the following points in mind while opting for the monthly return schemes -

1. Avoid Last-Minute Investments

Many insurance policies and mutual funds are commonly sold in the last month of the fiscal year, as investors rush to meet the March 31st deadline for tax-saving investments. However, it is important to note that solely considering monthly income plans for your tax-saving benefits is a short-sighted approach to financial planning. Instead, it is advisable to evaluate these plans based on your long-term potential and ability to secure your future.

2. Plan for Retirement

The best monthly investment plans are those that provide a regular retirement income when you are no longer working. With advancements in healthcare infrastructure and improved wellness standards, individuals in their 30s to 50s are likely to live well into their eighties or even nineties. This means that if you retire at 60, you may have another 40 years to plan for, which could exceed the duration of your working years.

3. Calculate Your Income Needs

To understand the financial requirements for your retirement and the investment amount for your monthly income plan, it is important to calculate your desired income. For instance, if you require INR 20,000 per month, you would need INR 20,000 x 40 (years) x 12 (months), which equals INR 96,00,000. 

However, this calculation assumes zero inflation which is quite unlikely. Hence, the actual amount needed is likely to be on the higher side. Increasing the monthly requirement to INR 40,000, for instance, would mean needing close to a crore or more - adding an additional INR 20,000 would escalate the required amount. 

These numbers emphasise the importance of starting early and planning effectively.

4. Focus on Long-Term Financial Security

Instead of considering monthly income plans solely as tax-saving tools, it is essential to view them as a means to secure your future and live a dignified life. Investing in the best monthly income schemes, whether they are online options or plans from renowned insurers like LIC or SBI, should not be limited to specific months or times of the year. It is crucial to prioritise long-term financial security and invest in these plans whenever you are financially ready.

How is a Monthly Income Plan Different From Fixed Investment Options?

Monthly income plans (MIPs) are investment instruments that blend equities and debt/money market instruments within a portfolio. Typically, around 5% to 25% of the portfolio is invested in equities, while the remaining 75% to 95% is allocated to debt and money market instruments. 

The primary objective of MIPs is to provide investors with a steady monthly income. Dividends can be received annually, semi-annually, quarterly, or monthly, giving investors flexibility in choosing their preferred payout frequency.

When comparing MIPs to fixed investment options, a notable distinction arises. In MIPs, the returns are dependent on the performance of the underlying fund in the market. On the other hand, fixed investment options guarantee predetermined returns to investors.

It's worth noting that MIPs offer certain advantages in terms of tax efficiency. Dividends declared under MIPs, for instance, are exempt from taxes, making them a more tax-friendly investment option.

MIPs are particularly suitable for individuals planning for retirement or seeking a reliable source of income to cover their monthly expenses. It is essential, though, for investors to carefully assess the associated risks before committing to MIPs. These plans can serve as an additional income source alongside an individual's regular earnings.

Best Monthly Investment Plan

Given below are some of the remarkable monthly income investment plans available -

1. SBI Debt Hybrid Fund

This open-ended scheme primarily invests in debt and money market instruments, with a portion invested in equity and equity-related instruments. It aims to offer regular returns and is suitable for mid-term and long-term investments. The asset allocation is 25% equity and 75% debt, thereby reducing risk and volatility. It is ideal for individuals seeking regular income with a moderate risk appetite.

2. ICICI Prudential Regular Savings Fund

ICICI prudential regular savings fund is an open-ended scheme that focuses on generating regular income through debt and money market instruments, with a small equity allocation for long-term capital growth. The asset allocation is approximately 14% equity and 77% debt. 

This plan is suitable for mid-term and long-term investments as it offers both capital growth and regular returns.

3. UTI Regular Savings Fund

This plan primarily invests in debt and money market instruments, with a portion allocated to equity for long-term capital appreciation. The fund holds a 25% equity allocation, including large-cap, mid-cap, and small-cap stocks, and 71% in debt instruments. It is a low-risk option that is ideal for investors seeking regular income and capital appreciation.

4. Franklin India Debt Hybrid Fund

An open-ended scheme, the Franklin India Debt Hybrid Fund mainly invests in debt funds and allocates a maximum of 25% to equities. The fund aims to generate regular income from the fixed-income market. It is suitable for long-term investors seeking regular income and capital appreciation.

5. IDFC Regular Savings Fund

This open-ended hybrid scheme primarily invests in debt and money market instruments, with a portion allocated to equity for long-term capital appreciation. The fund holds a 24% equity allocation (including large-cap, mid-cap, and small-cap stocks) and 49.79% in debt instruments. It is a low-risk option suitable for investors seeking regular income and capital appreciation.

6. Kotak Debt Hybrid Fund

It is an open-ended hybrid fund that enhances returns through investments in debt instruments with moderate exposure to equity and equity-related securities. The asset allocation is 24.49% equity and 75.53% debt. This fund offers optimal returns with reduced risk and is suitable for investors seeking regular income and capital preservation.

7. Reliance Hybrid Bond Fund

Reliance Hybrid Bond Fund is an open-ended hybrid fund that aims to generate consistent returns and capital appreciation by investing in a mix of equity, equity securities, and fixed-income instruments. It holds a 12% equity allocation - comprising large-cap and mid-cap stocks - and 83% in debt and low-risk securities. It is suitable for investors with a high-risk appetite seeking regular returns and long-term capital growth.

8. Sundaram Debt-Oriented Hybrid Fund

This open-ended hybrid fund aims to generate regular income and capital growth through investments in fixed-income securities and equity-related securities. It allocates 24% to equity and equity-related instruments and 68.82% to debt and low-risk securities. It is suitable for investors seeking regular income and capital growth over the long term.

9. SBI Multi Asset Allocation Fund

It is an open-ended scheme that allows investors to make investments in a portfolio of multiple asset classes such as equity, debt, and commodities. The fund dynamically adjusts its debt allocation based on market dynamics and macroeconomic factors, and is suitable for investors seeking regular returns with a moderately high risk appetite.

10. DSP Regular Savings Fund

This open-ended hybrid fund aims to generate attractive returns by investing in equity instruments while primarily focusing on quality debt securities and money market securities. The asset allocation is 25% equity and 72% debt, reducing risk and volatility. It is a low-risk option suitable for investors seeking regular income and long-term capital appreciation.

Best Monthly Income Plans from Providers 

As discussed above, most insurance companies in India offer online monthly income plans that provide the dual benefit of savings and investments. They offer multiple customisation options for online monthly income policies and allow you to choose between premium and payout options – 

1. Bharti AXA Life Monthly Income Plan Plus

This monthly investment plan provides insured individuals with the flexibility to choose their desired monthly payout, which determines the premium amount. Payouts begin after the premium payment period ends. Additionally, the plan offers a reversionary bonus paid at the end of the policy period.

For those opting for longer-term plans, such as 20 or 30 years, the company provides premium discounts. Optional riders, including accident death benefits, hospital cash, and premium waiver, can be utilised to secure additional coverage options.

2. Canara HSBC Oriental Bank of Commerce Life Insurance Smart Monthly Income Plan

With a policy term of 25 years, this plan provides life cover along with a guaranteed monthly income for 15 years. Insured individuals here have the option to offset the receivable payout against the premium due from the eleventh to the fifteenth year. The sum assured is determined as 100 times the monthly income chosen by the insured. A notable aspect of this plan is that it offers annual bonuses and a final bonus, which enhances the overall benefits for policyholders.

3. Max Life Monthly Income Advantage Plan

This plan offers monthly payouts over a 10-year period, with the amounts received in the last five years being double those of the first five years. Payments commence immediately after the premium payment period ends. 

The policy also includes a guaranteed terminal benefit paid at the end of the payout period, giving policyholders the flexibility to receive the entire amount as a lump sum. The Max Life Monthly Income Advantage Plan provides a comprehensive solution for regular income and financial security.

4. MetLife Monthly Income Plan – 10 Pay

Designed for a 15-year payout period, this monthly income plan features a premium payment tenure of 10 years. In addition to the insurance cover, the plan offers a reversionary bonus, further increasing the benefits for the insured individual. 

It can be purchased through an advisor or directly from MetLife's branch offices. With a range of monthly income options available from Rs. 1,500 to Rs. 1 lakh, the plan caters to a wide range of individuals seeking steady income and financial stability.

Who Should Opt for a Monthly Income Plan?

Monthly income plans are suitable for individuals seeking particular financial goals and investment requirements. We have listed below some groups of people who may consider opting for monthly return plans – 

1. Retirees

Monthly income schemes in India can present a beneficial investment option for retirees who rely on a regular income to meet their living expenses. These plans provide a steady monthly income, helping retirees maintain their financial stability during their post-employment years.

2. Individuals With Fixed Expenses

If you have fixed monthly expenses such as mortgage payments or educational fees, monthly return investments can help generate a consistent income stream to cover these obligations. By investing in MIPs, you can ensure a reliable source of funds to meet your recurring financial commitments.

3. Risk-Averse Investors

Monthly investment plans generally have a higher allocation to debt and money market instruments, making them less risky than pure equity investments. So if you are a conservative investor who is seeking a balanced approach with the potential for income generation, MIPs can be a suitable choice.

4. Tax Efficiency

The best monthly investment plans offer tax benefits as the dividends earned from these plans are tax-exempt. If you are looking for investment options that can help minimise your tax liabilities, MIPs provide an advantage in terms of tax efficiency.

Best Investment Plan for Monthly Income to Consider in 2023

Take a look at some of the notable investment plans to consider in 2023 -

1. Post Office Monthly Investment Scheme

Post Office Monthly Income Scheme (POMIS) is a highly reliable monthly investment return option offered by the Post Office (regulated by the Finance Ministry). It allows a maximum investment of  INR 4.5 lakh for single account holders and INR 9 lakh for joint account holders. The scheme has a maximum tenure of 5 years and offers an attractive interest rate of 7.7% per annum, paid on a monthly basis.

As a government-backed investment, POMIS is considered one of the safest options for investors seeking regular income. Interestingly, the payouts start one month after the first investment is made. 

The minimum investment required to start in POMIS is INR1,500. Additionally, investors have the option to reinvest the maturity amount for another five years and gain further returns.

2. Senior Citizens Savings Scheme

The Senior Citizen Savings Scheme (SCSS) is a government-backed monthly income scheme designed for individuals aged 60 and above. It can be opened in certified banks or post offices across India. The scheme has a tenure of five years, which can be extended for an additional three years. 

As of the Jan-March 2020 quarter, SCSS offers an attractive interest rate of 8.6%. Investors can deposit a minimum of INR 1,000 up to a maximum of INR 15 lakhs. Note that the interest income is subject to income tax - if it exceeds INR 50,000, TDS is applicable under Section 80TTB of the IT Act.

3. Fixed Deposit Monthly Income Plan

Fixed Deposit Monthly Income Plans are ideal for individuals looking for a fixed monthly income. These plans function as term deposits, where the interest earned is directly credited to the investor's account on a monthly basis. 

Some key features of fixed deposit monthly income plans include varying limits for minimum and maximum deposit amounts, discounted interest rates, and options for half-yearly, quarterly, or monthly payouts. 

Some plans come with credit ratings to indicate their reliability, and most offer nomination facilities. It's important to note that some banks may deduct TDS on the interest earned, and the maximum interest rate offered by FD Monthly Income Plans is generally 7.25%.

4. Corporate Deposits

Corporate Deposits, also known as Company FDs, make for another suitable monthly income plan. These deposits involve investing a fixed amount at a fixed interest rate for a specific duration. Housing finance companies and non-banking financial companies (NBFCs) offer Corporate Deposits.

It's essential to check the credibility and CRISIL standards of the company before investing. Diversifying funds across different high-ranking companies can help ensure a steady monthly income. It’s worth noting that the interest rates for senior citizens are often higher in these deposits. 

Examples of top-rated corporate deposits with CRISIL-FAAA/Stable rating include Bajaj Finserv FD, Shriram Transport FD, and Mahindra Finance FD.

5. Government Bonds

Government Bonds are low-risk options for those seeking a long-term investment spanning 15 to 20 years. Investing in government bonds, alongside other schemes, can provide a regular income stream. The risk associated with government bonds is relatively low, and interest payments can be received monthly, quarterly, half-yearly, or yearly, depending on the available tax-free bonds.

Individuals in higher income tax brackets can benefit from tax-free government bonds, which makes them an attractive monthly income plan option.

Things to Consider Before Buying a Monthly Income Plan

Before applying for a monthly investment scheme, it is essential to look for some factors as discussed below –

1. Assess Your Financial Needs

Before opting for a monthly income plan, it is crucial to assess your financial requirements. Consider the returns you are seeking, the duration of payouts and premiums, and the type of income generation required in case of unfortunate circumstances. Each factor will be influenced by your current income, desired lifestyle, future goals, and tax-saving plans.

Evaluating these aspects will help you determine whether a particular monthly income plan aligns with your financial objectives.

2. Retirement Income Planning

Monthly return investments are particularly suitable for individuals looking for a reliable source of income during retirement. Consider your post-retirement income and whether your existing investments, such as a pension fund or PPF, will be sufficient to maintain your preferred lifestyle. 

If additional regular payouts are necessary to meet future expenses, monthly investment plans should be explored. Insurance companies' monthly income plans generally offer a more comprehensive option compared to mutual funds as they provide capital protection along with insurance cover.

3. Evaluate Your Insurance Coverage

Insurance policies offer more than just life coverage; they also provide optional riders for additional benefits such as accident and disability cover, critical illness protection, and more. It is crucial to review your current insurance coverage and examine whether it adequately protects your family and dependents in case of unforeseen events. 

If your existing policies offer a lump sum payout or periodic payments, considering a monthly return investment can ensure a consistent monthly income for your loved ones to cover their living expenses.

4. Online or Traditional Purchase

When purchasing a monthly income plan, you have the option to buy it online or through traditional channels. Online money income plans often offer cost-effective solutions as the absence of intermediaries reduces the overall cost. The convenience of online platforms allows you to research and compare different plans easily - from the comfort of your home or while on the go. Additionally, online plans typically offer the same payout options as traditional policies.

5. Convenience and Cost Considerations

Choosing an online monthly income scheme in India can provide greater convenience and cost savings. With online platforms, you can access plan details, compare options, and make purchases anytime and anywhere. 

The absence of insurance agents in online transactions often results in lower costs, which can translate into higher overall income for policyholders. Thus, it is advisable to take advantage of the convenience and affordability offered by online money income plans to make informed decisions about your financial security.

Bottom Line

Monthly income plans in India offer individuals a reliable and steady source of income to meet their financial goals. These plans provide regular payouts in the form of dividends, interest, or a combination of both. Furthermore, they come in various forms, including those offered by life insurance companies and mutual fund companies, each with its own unique features.

The key benefits of monthly income plans include guaranteed regular income, increased payouts through bonuses, insurance coverage, tax benefits, and future control and flexibility. These plans are particularly suitable for retirees, individuals with fixed expenses, risk-averse investors, and those seeking tax efficiency.

With that said, it's important to carefully evaluate the options and consider particular factors such as your financial requirements, retirement planning, insurance coverage, and convenience before choosing a monthly income plan.

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