A Safe and Stable Investment Option
The Monthly Income Scheme (MIS) is one of the various post office savings schemes in India. The profile is designed mainly for individuals seeking a low-risk, safe and stable monthly income. It is a kind of saving account from the Post Office, which offers a guaranteed return on the investment. It is popular among retirees and risk-averse investors who are interested in saving a part of their hard-earned money yet earning a constant income from this scheme.
Key Features of MIS
The primary advantage of the MIS scheme is that it offers an assured, fixed interest income per month. This scheme is government-backed; therefore, it has almost zero default risk involved. The minimum amount that needs to be invested is INR 1,000, and there is no maximum limit. However, the maximum amount that can be invested for earning interest is INR 4.5 lakhs for a single account and INR 9 lakhs for a joint account. For every INR 1,000, an interest of INR 61 is earned. Currently, as of July 2021, the interest rate provided by Indian post office under monthly income scheme is 6.6% per annum, payable monthly.
Differences Between MIS and Recurring Deposit (RD) Accounts
However, the MIS account is different from the Recurring Deposit (RD) account, which is another popular post office savings scheme. In an RD account, individuals deposit a fixed sum of money every month, and at maturity, they get the total amount deposited along with the interest earned. In MIS, the individual has to deposit a lump sum amount in the starting, and they will receive a fixed monthly income throughout the tenure of the scheme. Further, Recurring Deposit can be extended indefinitely, but MIS has a fixed tenure of 5 years.
In comparison between these two post office saving schemes, the RD account has a higher interest rate, which stands at 5.8%, and the tenure can be from 6 months to 10 years, unlike MIS which has fixed tenure of 5 years. In case, the account holder wants to exit before the maturity date, then in the case of RD there will be a nominal penalty charge, while for MIS, a small amount will be deducted as a pre-mature closure charge.
Tax Implications
In terms of tax liability, investment in MIS does not fall originally under Section 80C tax exception and the interest earned is liable to tax according to the tax slabs of investors. However, the interest earned in RD is exempted from tax.
While investing in such post office saving schemes, it is crucial to understand not only the capabilities of the scheme but also the requirement and capability of the investor.
Disclaimer
Before investing in any financial product, an investor needs to understand the product well and evaluate the risks involved. The risks associated with trading and investing can be substantial. You should therefore carefully consider whether such trading is suitable for you in light of your financial condition. It’s always advisable to gauge the pros and cons of all the parameters and seek advice from a financial advisor.
Summary
The Monthly Income Scheme (MIS) and the Recurring Deposit (RD) are popular post office saving schemes in India. While MIS is a low-risk investment, offering a fixed return on investment, the RD involves depositing a fixed sum every month and offers a higher rate of interest. MIS involves depositing a lump sum and earning a fixed interest every month, with a fixed tenure of 5 years. However, RD allows for an indefinite extension beyond the tenure. Unlike RD, the investment in MIS does not fall under Section 80C tax exception and the interests earned are taxable. It is crucial to understand the capability of the scheme, and the requirement, and capability of the investor before investing.