Mr. Sandeep retired last month, and has received a sum of money which he is looking to invest in a non risky product such that he receives regular income going forward. He already has investments in fixed deposits with banks and is looking for something different. Post Office Monthly Income Scheme (PO MIS) will come handy for Mr. Sandeep as it will serve twin objectives- regular income and safety. PO MIS is guaranteed by the government and hence the risk element is very low.
What is a PO MIS?
PO MIS is an investment product offered by the Post Office, with a six year lock in period, wherein investors will receive interest income every month at a fixed rate of interest and a bonus at the end of the tenure. This product is best for those looking for a steady state of income. It is like a fixed deposit providing monthly income in the form of interest.
The interest rate currently provided on this product is 8% p.a. with a bonus of 5% on the principal amount at the end of the tenure i.e. six years. On account of the bonus, the effective return on the product increases to ~8.9%.
The interest earned on PO MIS is taxable. There is not tax deducted at source and the investment is exempt from wealth tax.
You need to approach any head post office/ sub-post office, fill the prescribed form and then submit it with cash, demand draft or local cheque. The post office will open the account for you, issue you a scheme certificate and then give you a passbook to record the transactions against the MIS. The passbook will contain details such as name, address, the amount deposited and the monthly interest payable along with the date on which the deposit will be due for final payment. Interest can be received either by presenting the pass book to the post office every month or by availing of the direct credit facility to the savings account in which case, the pass book has to be presented to the post office at least once every six months for completion of entries. There is not restriction on transfer of account to any other post office.
Eligibility: Only individuals can invest in this product. A minor having attained 10 years of age can open an account in his/her own name directly. A Non Resident Indian (NRI) or Hindu Undivided Family (HUF) cannot have an investment in PO MIS
Tenure: Investment in this product will be locked in for duration of six years.
Interest payment: Interest is paid on a monthly basis one month from the date of making the investment. In case monthly interest is not claimed, additional interest is not paid for the interest not claimed.
Investment Limit: The maximum investment is Rs. 4.5 lakh in case of single account and Rs.9 lakh in case of a joint account. The minimum amount that can be invested is Rs. 1,500
Number of accounts: Any number of accounts can be opened so long as the total amount does not exceed the maximum permissible amount of Rs. 4.5 lakh in case of single holding and Rs. 9 lakh in case of joint holding.
Pre-mature closure: This can be done only one year after the investment has been made. The conditions are as under
* Closure prior to 3 years of opening the account will lead to a deduction of 2% on the principal amount i.e. the deposit, and the remainder will be paid.
* Closure post 3 years of opening the account will lead to a deduction of 1% on the principal amount, and the remainder will be paid.
E.g. Mr. Mani had an investment in a PO MIS of Rs. 1 lakhs. He decided to pre-maturely close the account at the end of 1.5 years. He would have received monthly interest for the 1.5 years the money was with the post office which totals up to Rs.12,000. He will lose out on the bonus on account of pre-mature closure and will receive Rs. Rs. 98,000 on account of the penalty of 2% instead of Rs. 1 lakh. Hence his total earnings for the 1.5 years will fall to Rs. 10,000 which in effect is a return of 6.67%.
In case of death of a depositor before maturity, the account may be closed and the deposited amount refunded to the nominee/heir along with interest up to the month preceding the month in which refund is made.
The rate of interest currently offered by banks for a similar tenure is almost a percentage point lower than that offered by PO MIS in most cases at this point. Besides, banks do not pay off the interest monthly. This makes PO MIS more attractive.