Every middle class in India wants a regular income with government backing. One way is to invest in Government bonds and security through mutual funds, and another simple way, I have observed, is the Post Office Monthly Income Scheme (POMIS).
In India, the Post Office Monthly Income Scheme (POMIS) is a popular way to invest, especially for people who don’t like taking risks and want to be sure of their profits. But before jumping in, it’s important to know what the pros and cons of this plan are. We will also see what factors should be considered while investing in this fixed income scheme.
Pros of MIS as Steady Income
1. It is backed by the Government that gives a sense of security. Your investment is guaranteed by the sovereign, minimizing any risk of default.
2. You can get monthly income depending upon your investment. Individual accounts can deposit a maximum deposit ₹9 lakhs and on that interest rate is 7.4% per annum (2024-25) and joint accounts can deposit maximum ₹15 lakhs. You can check our calculator (Calculate Monthly Income in Post Office Monthly Income Scheme (MIS)) to know the monthly income from your investment.
3. Interest will be due every month from the date the account was opened until it matures. For example, If you deposit ₹9 lakhs in an individual account, you will earn ₹5,550 per month as interest on it.
4. You can start a POMIS account with a minimum investment of ₹1,000, making it an attractive option for those with limited investment capital. But, you can then invest in multiples of ₹1,000 only thereafter.
5. Tax Benefits (Partially): While the interest earned on POMIS is taxable, it doesn’t qualify for tax deductions under Section 80C of the Income Tax Act. However, there’s no Tax Deducted at Source (TDS) on the interest income.
Cons of POMIS with Limited Flexibility
1. POMIS comes with a fixed tenure of 5 years. Early withdrawals are possible but attract penalties, reducing your overall return.
- No deposit shall be withdrawn before the expiry of 1 year from the date of deposit.
- If the account is closed after 1 year and before 3 years from the date of account opening, a deduction equal to 2% from the principal will be deducted and the remaining amount will be paid.
- If the account is closed after 3 years and before 5 years from the date of account opening, a deduction equal to 1% from the principal will be deducted and the remaining amount will be paid.
This limits your access to the invested amount if needed for unforeseen circumstances.
2. Interest is changed every year by the Government and it is 7.4% (2024-25). If you need money in an emergency, you will withdraw the amount by paying the applicable penalty which lowers the effect of interest earned on the deposits.
3. POMIS interest rates are fixed. Over time, inflation can erode the purchasing power of your returns. This may be a concern for long-term investors seeking to maintain or grow their capital in real terms.
4. This fixed income scheme doesn’t offer the potential for high growth compared to equity-linked investments. So, those who have good knowledge of mutual funds and stock market, this scheme won’t be preferred. If your investment goals involve significant wealth creation, POMIS might not be the most suitable option.
Ask yourself these questions
POMIS is a good fit for individuals seeking:
- Those recommending Guaranteed returns and low risk. It’s a government scheme and good for non-financial background senior citizens.
- Retirees or individuals depending on a predictable monthly income can benefit from POMIS regular payouts.
- For short-term investment goals with a 5-year horizon, POMIS can provide a secure and reliable return.
Conclusion
The Post Office Monthly Income Scheme is a safe and easy way to make money on a daily basis. But you should seriously think about what it can’t do in terms of returns and freedom. If you think about your personal financial goals, what are your future goals, and have a higher returns appetite, this fixed income scheme might not be good for you. However, every investment varies from individual to individual, you can decide if POMIS is the right investment for you.
