The Indian work culture has undergone a paradigm shift through the years. Earlier, it was considered natural to join a company and continue working for it until retirement, thus earning you a few added benefits and maybe even a pension.
Today, however, it has become customary to jump from one company to another to find better opportunities. And even though this practice may restrict you from enjoying the steady benefits associated with sticking to a single employer, it does grant invaluable exposure to your CV.
However, as a new-age employee, the question remains whether you can save enough money for retirement without any form of pension to fund your daily expenses. And even if you are far away from any thoughts of retirement, it’s still a great feeling when you are financially free and do not have to worry about using all your salary for monthly expenses. Fortunately, thanks to an ever-increasing number of investment options available in the market today, you can attain financial freedom by opting for the ones that offer monthly payouts.
Factors to Consider Before Investing in Monthly Income Schemes
- Risk Tolerance: Understand your risk tolerance level. Different monthly income schemes come with varying levels of risk. Assess how comfortable you are with potential fluctuations in returns and the possibility of capital loss.
- Investment Goals: Determine your investment objectives. Are you aiming for stable income, capital preservation, or growth? Your goals will help you choose the most suitable monthly income scheme for your needs.
- Market Conditions: Keep an eye on the prevailing economic and market conditions. Certain asset classes perform differently based on market cycles. Evaluate how these conditions might affect the scheme's performance.
- Diversification: Consider whether the scheme contributes to your overall investment portfolio diversification. Avoid overloading your portfolio with a single type of investment.
- Investment Composition: Understand the composition of the scheme's portfolio. Different monthly income schemes invest in various assets such as bonds, stocks, real estate, etc. Ensure the composition aligns with your risk profile and objectives.
Best Investment Ideas to Generate Monthly Income
1. Corporate deposits
There are a lot of corporations offering a high-interest rate based on their ratings and deposit tenor. Usually, they are offered by Non-Banking Financing Companies (NBFCs) and housing finance companies. Such companies provide interest on a quarterly or half-yearly basis and can be arranged to offer you returns for any four months in a year.
They come with additional attractive interest rates for senior citizens. It is important to remember that there is a slight risk of delay in payment or default from companies. That is why you should ensure that your chosen company has high credibility and consistently stable ratings of at least AAA. To diversify the risk, you can distribute your money into deposits with multiple companies, which will also help ensure you receive income for every month of the year.
2. Post office monthly income account scheme
For those investors with a zero-tolerance for risk and hopes of earning continuous income, the post office monthly income account scheme is one of the best available options. The interest is paid at an annual rate.
The accounts opened between December of 2007 and November of 2011 will receive a bonus of 5% on the principal amount when they mature. Although the maturity period for this scheme is 5 years, you can withdraw earlier if you complete one year of deposit. Withdrawing between 1 year to 3 years of deposit results in a 2% deduction. If you withdraw between 3 years to 5 years, you will incur a 1% deduction from the total amount deposited.
3. Senior citizen savings scheme
The post offices in India offer a special investment scheme for people aged 60 or above, which is called a senior citizen savings scheme. It is another type of risk-free instrument that can offer significant returns.
However, remember that you have to open your account within the first month of receiving the retirement benefit. The amount you deposit should not be greater than the retirement benefit amount received. An interest rate of up to 8.60% p.a. calculated annually can be availed under this scheme by those who invested after the 1st of April, 2016.
4. Long-term Government Bond
Another negligible-risk option with good returns, a long-term government bond pays interest once or twice a year. You can club it with the other best investment plan for monthly income. Since they are traded on the secondary market, you can sell them whenever you wish. However, the catch is that you have to lock in your funds for a considerably long tenor which can go up to 15 or 20 years.
5. Equity Share Dividend
This option allows for investment appreciation over the long term, along with the promise of a regular income, but the risk factor is very high. You are required to build a diverse portfolio including multiple stocks to facilitate a high dividend payout ratio. Since you receive dividends on profits and not on capital, there is a greater-than-average possibility of companies not paying regular dividends.
Indian insurance companies are known to offer annuity plans that offer low risk and a regular income. You can use this as a retirement strategy by making a lump sum investment to earn income at fixed intervals. The primary method of classifying annuity plans is based on the duration of the payment period and is divided into deferred annuity and immediate annuity.
Deferred annuity provides money after a fixed tenor period set by you, while Immediate annuity involves receiving regular income as soon as you make the lump sum payment. However, keep in mind that there are various charges involved in annuity investment, including commission and surrender fees. It is also taxable and does not yield any tax benefits.
7. Mutual fund monthly income plan
This plan is ideal for beating inflation, provided you are ready to take a moderate amount of risk. The ratio is usually 20% to 30% investment in equity securities and 80% to 70% in debt instruments like certificates of deposit. A good tenor for this plan is between 2 to 3 years, and you can receive a monthly income by selecting a dividend-payout option. However, the equity component makes it difficult to acquire regular dividends because dividends are only paid on profits, not the invested capital.
By investing in Mutual Funds, you can enjoy the potential for consistent monthly income, giving you greater financial stability and freedom. Let your money work for you and experience a transformation in your monthly income like never before.
8. Fixed Deposit
A perennial option for those looking for good returns on almost no risk, fixed deposits is ideal for all age groups. The better companies that offer fixed deposits carry a high credit rating and consistent stability. You can opt for a non-cumulative fixed deposit to acquire monthly payouts, but make sure the interest rate is not too low. Also, it is advisable to look for a company that offers added benefits, like online account management and fixed deposit calculators.
Fixed deposits are ideal for all age groups, a perennial option for those looking for good returns on almost no risk. The better companies that offer fixed deposits carry a high credit rating and consistent stability. You can opt for a non-cumulative fixed deposit to acquire monthly payouts, but ensure the interest rate is not too low. Also, looking for a company that offers added benefits, like online account management and fixed deposit calculators, is advisable.
What Is the Importance of a Monthly Income Generation Plan?
The significance of different Monthly Income Generation Plans lies in their ability to cater to diverse financial goals, risk appetites, and individual circumstances. These plans play a pivotal role in establishing financial stability and flexibility by offering various avenues to generate a regular income stream. Each type caters to specific needs – whether it's capital preservation, wealth accumulation, or consistent cash flow. Diversifying across these plans can mitigate risk and enhance overall portfolio resilience.
Moreover, these can accommodate both short-term needs, like covering routine expenses, and long-term objectives, such as retirement planning. They empower individuals to align their investment strategy with their financial aspirations, ensuring a well-rounded approach to income generation. By understanding the various options available and customising these plans for individual financial profiles, investors can harness the potential for steady income and financial security, while also adapting to the ever-evolving landscape of the financial markets.