Post Office Monthly Income Scheme: Who should invest?

Understanding the Post Office Monthly Income Scheme

Post Office Monthly Income Scheme (POMIS) is a Government of India-backed savings plan that provides a regular fixed income. It allows investors to invest a lump sum and earn interest on a monthly basis. The duration of the scheme is five years, in which duration the amount invested is returned to the investor as principal. The rate of interest is modified every quarter by the government and is greater than what can be derived out of a saving account.

Important features of the scheme

POMIS is available on individual as well as joint basis with a minimum of Rs.1,000 and a maximum of Rs.9 lakh for individual or Rs.15 lakh for joint account. Interest is credited monthly to the savings account of the investor, earning regular returns. There are no tax benefits under Section 80C from the scheme, and interest accrued is taxable. But its guaranteed returns and governmental guarantee render it one of the safest small savings schemes available.

Who should invest

POMIS is ideal for those investors seeking a secure and predictable monthly income. It is most suitable for retirees, senior citizens, and individuals who prefer low-risk investments. For individuals relying on regular income to cover household expenses or supplement pensions, this scheme assures financial security. It also appeals to conservative investors who are interested in safeguarding capital instead of generating high returns.

Advantages of the scheme

The primary advantage of POMIS is its assured monthly payment, providing financial stability. As a government scheme, default risk is zero. Flexibility is also provided by it since investors can maintain more than one account within the permissible limit. Investors can also make nominations and transfer accounts from one post office to another with ease.

Restrictions to be remembered

While POMIS offers security and guaranteed income, it is not suited for investors who are looking for high growth or wealth generation. The returns, even though fixed, may not always be more than inflation. Even the five-year lock-in period also means low liquidity since the earliest withdrawal is possible only after one year with accompanying penalties. Additionally, since the interest is taxable, the net returns after tax may be lower for individuals in higher tax brackets.

Choosing the best

For those looking for security, sure-shot returns, and periodic income, the Post Office Monthly Income Scheme is a safe bet. But long-term wealth accumulators can use it in tandem with other instruments such as mutual funds or fixed deposits to reconcile growth and stability.