How to Invest 25 Lakhs for Monthly Income?

Earning monthly income from Rs.25 Lac lump sum investment is ideal for retirees or homemakers who need a regular income stream to sustain a financially independent lifestyle. In addition, individuals with disposable income looking to augment their monthly income can explore various investment avenues available in the market. However, your risk profile is critical for investing in a particular scheme. While banks and post offices are ideal for the risk-averse, funds, corporate deposits, besides others prove lucrative for individuals wishing to maximize returns. So, let us look closely at various aspects before investing.

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7.7 Crore

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Disclaimer: #The investment risk in the portfolio is borne by the policyholder. Life insurance is available in this product. The maturity amount of Rs 1 Cr. is for a 30 year old healthy individual investing Rs 10,000/- per month for 30 years, with assumed rates of returns @ 8% p.a. that is not guaranteed and is not the upper or lower limits as the value of your policy depends on a number of factors including future investment performance. In Unit Linked Insurance Plans, the investment risk in the investment portfolio is borne by the policyholder and the returns are not guaranteed. Maturity Value: ₹1,05,02,174 @ CAGR 8%; ₹50,45,591 @ CAGR 4%. *Tax benefits and savings are subject to changes in tax laws. All plans listed here are of insurance companies’ funds.

Factors to Consider for Rs. 25 Lac Monthly Investment Income:

The primary objective of the investment is earning returns on it. Therefore, wherever you invest, the prime criterion that clinches the issue is what you will likely earn over the chosen tenor. However, monthly income serves an altogether different objective than the long-term perspective. Therefore, the factors to consider for monthly income investments are:

Safety:

Banks and post offices are the safest investment organizations in the Indian context. It is not only their penetration across the country, but your deposits enjoy DICGC cover besides functioning under strict RBI regulation.
Guaranteed Returns:

Investors with a low-risk profile look for options where the returns are guaranteed rather than depend on market volatility.
Flexibility:

While investing your Rs.25 Lac disposable income, you must prudently choose the tenor and the scheme. The monthly income stream should continue for the varying tenor and should offer a premature withdrawal facility for liquidity.
Tax Liability:

Investors also look at the tax liabilities arising from the monthly income on Rs.25 Lac investment. For example, senior citizens earn an exemption of Rs.50000 annually on interest income. On the other hand, Fund returns are liable for taxation under capital gains, as per norms.

Investment Options for Monthly Income Rs.25 Lac:

Having comprehended the factors influencing the decision to invest Rs.25 Lac and earn monthly returns, let us now explore the schemes open to you.

Bank Deposits:

Every bank offers a monthly income scheme for periods ranging from 1 year to 10 years with varying interest rates. Since banks apply compounded interest quarterly, the monthly interest paid is discounted. However, you enjoy various upsides like flexible tenors, joint account operation, nominee facility, loans, and above all, liquidity through premature closure without penalty.
Corporate Deposits:

Like the bank, corporate deposits offer a higher interest rate that translates to higher monthly income. However, you cope with the possible higher risk to your investments than banks.

Therefore, it is your responsibility to choose corporate houses offering deposits, be it Non-banking Financial Companies (NBFC), Housing Finance Companies (HFC), or other companies. A “AAA” CRISIL or ICRA rating signifies high credibility and stability. Though not strictly in the monthly income genre, as the income is paid quarterly or half-yearly, you can distribute the total investment across companies to satisfy the monthly income norm.
Monthly Income Plan Funds:

Mutual Fund investments have emerged as the favorite option for investors looking to maximize returns through market instruments. The investment suits the risk-averse retirees and conventional investors alike for the higher returns essentially from hybrid funds. These funds attract nearly 70 to 80% of allocated assets in debt funds while the rest is in equities delivering consistent returns.

On the other hand, hybrid balanced funds allocate nearly 65% of the corpus in equities and the remaining in debt funds. You can choose from the annual or monthly dividend options. Some of the top dividend-paying balanced funds have yielded 10% or more returns over many years.

The cardinal point is that funds are not guaranteed in amount or timing. Dividends are disbursed out of the profits like any market-linked instrument. Here you must consider the Systematic Withdrawal Plan (SWP) in Funds, specifying a fixed monthly amount. Thus, you enjoy the benefit of a fixed monthly withdrawal and stay invested simultaneously.

Other Monthly Income Options:

While we have discussed the plans that permit unlimited investment options, you can still explore a few more schemes providing the option for periodic disbursement of the accrued interest.

Post Office Monthly Income Scheme:

The scheme offers a fixed 5-year tenure and currently, it is paying 6.6% interest per annum and disbursed monthly. Accordingly, you earn Rs.55 every month on an Rs.10000 deposit. In addition, you can open an account for single or joint operations. However, you can invest in multiples of Rs.1000 limited to a maximum of Rs.4.5 Lac singly and Rs.9 Lac jointly. The best part is that your investment is fully secure as it carries a sovereign guarantee.
Senior Citizens Savings Scheme:

A government-sponsored low-risk scheme tailored for senior citizen retirees to fulfill their social obligations. You can invest up to Rs.15 Lac for a 5-year tenure in all the post offices and designated banks across the country. The scheme enjoys a sovereign guarantee, currently paying 7.4% interest disbursed quarterly.

Though the scheme has a fixed tenure, you can extend it for another 3 years from the maturity date. Premature closure is allowed subject to complying with the underlying conditions. However, no conditions apply for deposits withdrawn prematurely after one year during the extended tenure.
Government Bonds:

Government Bonds are also called G-Secs, Government Securities for short. They are long-term investment schemes helping the central and state government raise funds to meet infrastructure development expenses. These bonds are essentially long-term debt instruments issued for tenures from 5 to 40 years with a fixed maturity date.

However, the investment is ideally suited for low-risk investors earning a fixed coupon rate, as the interest is called, higher than offered in banks or the post office fixed deposit schemes. Moreover, RBI has stipulated half-yearly interest disbursement to satisfy your requirement of earning periodic returns.

The RBI has also opened the Indian bonds market to retail investors from November 2021, making investments in the scheme attractive. In addition, there is no monetary ceiling for investments in G-Secs.

Why Invest in Monthly Income Scheme?

Retirees and homemakers are the primary investors in monthly income schemes that lend stability and financial independence through a steady monthly income. However, choosing the right investment vehicle depends mainly on your investment goals. Therefore, while considering the various impacting factors, the monthly investment portfolio must also deliver the following:

Augment Regular Income Flow: Provide stability through a regular income stream and financial independence to individuals with limited resources like retirees. In addition, the lump sum Rs.25 Lac investment is a security shield to meet financial emergencies apart from supplementing regular expenses.
Tax Benefits: While interest earning from Bank deposits and SCSS is free from TDS up to Rs.50000 for senior citizens, others enjoy similar benefits up to Rs.40000. Moreover, Investments in SCSS and G-Sec are tax-exempt up to a maximum of Rs.1.5 Lac under Section 80C of the Income Tax Act, 1961. However, other investment schemes offer no such benefit. (*Tax benefit is subject to changes in tax laws. Standard T&C apply.)

In Conclusion:

There are many investment options for Rs.25 Lac for monthly income. However, meticulous analysis about the return on investment and your objectives is the clincher. Bank or corporate deposits for a guaranteed fixed monthly income is ideal for risk-averse individuals. On the other hand, explore monthly income fund plans to maximize returns without fixed income assurance from market-linked instruments. In either case, investors are ensured financial stability and independence.

FAQ's

What are the tax implications for monthly income funds?

A: The debt-oriented funds are taxable under the short or long-term capital gains regime. If the units are disposed of before three years, the short-term gain is added to the investor’s income. On the other hand, LTCG at 20% is payable if disposed of after 3 years.
How can you prevent TDS application on your bank deposit?

A: Senior citizens submit Form 15H and other 15G at the beginning of a financial year in April to stop TDS application.
What is the interest disbursement schedule in the SCSS scheme?

A: The accrued interest is disbursed quarterly on the first after the application dates on 30 June, 30 September, 31 December, and 31 March.
How can you redeem your units in a monthly income plan fund?

A: You can redeem your fund units fully or partially on any business day based on the previous day’s declared NAV.

†Policybazaar does not endorse, rate or recommend any particular insurer or insurance product offered by any insurer. This list of plans listed here comprise of insurance products offered by all the insurance partners of Policybazaar. The sorting is based on past 10 years’ fund performance (Fund Data Source: Value Research). For a complete list of insurers in India refer to the Insurance Regulatory and Development Authority of India website, www.irdai.gov.in

Past 10 Years' annualised returns as on 01-12-2024

^The tax benefits under Section 80C allow a deduction of up to ₹1.5 lakhs from the taxable income per year and 10(10D) tax benefits are for investments made up to ₹2.5 Lakhs/ year for policies bought after 1 Feb 2021. Tax benefits and savings are subject to changes in tax laws.

*All savings are provided by the insurer as per the IRDAI approved insurance plan.

Tax benefit is subject to changes in tax laws. Standard T&C Apply
~Source - Google Review Rating available on:- http://bit.ly/3J20bXZ

^^The information relating to mutual funds presented in this article is for educational purpose only and is not meant for sale. Investment is subject to market risks and the risk is borne by the investor. Please consult your financial advisor before planning your investments.

#The investment risk in the portfolio is borne by the policyholder. Life insurance is available in this product. The maturity amount of Rs 1 Cr. is for a 30 year old healthy individual investing Rs 10,000/- per month for 30 years, with assumed rates of returns @ 8% p.a. that is not guaranteed and is not the upper or lower limits as the value of your policy depends on a number of factors including future investment performance. In Unit Linked Insurance Plans, the investment risk in the investment portfolio is borne by the policyholder and the returns are not guaranteed. Maturity Value: ₹1,05,02,174 @ CARG 8%; ₹50,45,591 @ CAGR 4%

¶Long-term capital gains (LTCG) tax (12.5%) is exempted on annual premiums up to 2.5 lacs.

**Returns are based on past 10 years’ fund performance data (Fund Data Source: Value Research).