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Investments that earn monthly income.

Apr-27-2022


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As an investor, you may be looking to deploy your funds in investments that earn recurring monthly income.  

Or, to put it simply, create a second, passive income source.

Here are 7 options to consider:

1. IndiaP2P Monthly Income Plan

Your investment under the IndiaP2P Income plan investment is deployed into fractionalized .i.e. parts of loans sourced from individuals with successful prior borrowing track records and/or good credit scores.
The borrowers repay monthly interest that becomes your earnings.
 

These investments are regulated by the RBI.

Indicative Returns ~16% p.a.

Tax: Earnings are added to your overall income and taxed as per your prevailing tax bracket.

 

2. Monthly Income Plans (MIPs) of debt-oriented hybrid  mutual funds

MIPs are typically funds with a majority allocation towards debt and some allocation towards equity.  The debt part of the allocation pays interest which becomes the investors' monthly/quarterly/annual income plus some more upside (and risk) comes from the equity allocation.  

As with all mutual funds, it is important to check the fund's credentials, expense ratio, the credit rating of the underlying debt, availability of cash with the fund to facilitate interest and dividend payouts etc. When markets are volatile, the cash position of funds tends to run low

Indicative Returns ~ The returns delivered by top 5 MIP funds over the last 5 years range between 7 to 9%. Most of these schemes are open-ended i.e. you can enter and exit (subject to exit loads) at any time.

Tax on the equity part of the fund is taxed as equity i.e capital gains tax is levied - short term (less than 3 years) or long term.

Tax on the debt part is taxed in two parts - the interest or dividends get added to your overall income and taxed as per your prevailing slab, while capital gains are taxed at 20% (LTCG) irrespective of your income bracket.

 

3. Rental Income

For many of us, rental income is another sought-after source of investment. Investors earn a regular stream of rental income and also benefit from the appreciation of underlying assets over time. Further, the availability of tax breaks and easy availability of credit makes the asset class lucrative for investors.

While real estate investors benefit from asset appreciation, but real estate returns are also subject to market cycles. Further, Rental returns, are often in the single digits (2-4 percent). As a result, returns are not assured, particularly for those who take out a loan to finance assets, usually costing twice the rate of rental returns.

Real estate investment requires a substantial upfront investment, which limits the accessibility of real estate as an asset class and/or the ability to diversify. For the few who own real estate portfolio, a large portfolio of wealth is tied up to asset class which is illiquid and inaccessible at the time of need.

Indicative Returns ~ non-standard

Tax: Rental earnings are added to your overall income and taxed as per your prevailing tax bracket.

 

4. Monthly Income Scheme (MIS) from Banks

Banks offer MIS which is basically a fixed deposit where interest is credited to your savings account every month.  Like FDs, MIS also currently offer lower than inflation returns.

Indicative earnings ~ 2.9 to 4.5%

Tax: Earnings are added to your overall income and taxed as per your prevailing tax bracket.

 

5. Post Office Monthly Income Scheme (POMIS)

POMIS is a deposit with the post office which gives regular interest over a tenure of 5 years. As the name suggests this is fixed deposit in Post Office on which you get regular monthly interest payment. The investment tenure is for 5 years only.

Estimated earnings ~ 6.6% p.a.

Tax: Earnings are added to your overall income and taxed as per your prevailing tax bracket.

 

6. Company Fixed Deposit

Certain public or private sector companies, especially Non-Banking Financial Companies can take deposits from retail investors offering monthly, quarterly or annual returns.There are NBFCs and Companies (both Government owned and Private) which offer fixed deposit schemes with monthly/quarterly or annual payments of interest.It's important to note that company FDs are not covered by the DICGC (deposit insurance of up to Rs. 5 lakh which is only for bank FDs). They are essentially unsecured. 

Estimated earnings ~ 6.75 to 8.5% p.a.

Tax: Earnings are added to your overall income and taxed as per your prevailing tax bracket.

 

7. Bonds or Non -Convertible Debentures 

Companies/NBFCs offer NCDs or Bonds that pay fixed interest rates/coupon.  Some of these pay interest payments quarterly or even monthly.  It is important to check the rating and quality of underlying assets on these investments.  There is a wide variation in the risk-return profile.

Estimated earnings ~ 7.25 to 13% p.a.

Tax: Earnings are added to your overall income and taxed as per your prevailing tax bracket.

 

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