Post Office Monthly Income Scheme

Introduction

The government rolls out several National Savings Schemes to provide a fixed return to investors. It is virtually risk-free and often helps create wealth for rural residents and senior citizens. This article explains one of the national savings schemes called the Post Office Monthly Income Scheme.

Key Features of the Post Office Monthly Income Scheme

The key features of the Post Office Monthly Income Scheme include the following.

1.    Eligibility: An adult can open the POMIS account individually or with a maximum of up to 3 adults. A guardian of a minor can open this account, and a child above 10 years of age can open the account in their name.

2.    Account holders: A person investing in the POMIS can hold the account individually or jointly with a maximum of three adult account holders.

3.    Deposit limits: The minimum deposit limit is floored at Rs. 1,000 in this scheme and the multiple of Rs. 1,000 thereafter. The maximum limit for the various type of accounts is as follows.
 

4.    Maturity period: The tenure of the POMIS is 5 years from the account opening date. However, the maturity amount realized at the end of the term can be reinvested.

5.    Pre-mature closure: You can close your account early by submitting the prescribed application with your passbook to the post office. However, the lock-in period is  a year and no deposit shall be withdrawn within a year of the deposit. The penalties for early closure are as follows.

6.    Nomination: The nominee facility is available and is subject to update after the recipient (i.e. family member) has opened the account. However, beneficiaries can claim benefits only after the account holder's death.

7.    Transfer facility: THe POMIS account holder can transfer accounts from one Post Office to another.

8.    Scheme Bonus: Account holders who opened accounts before 1st December 2011 were eligible to receive a 5% bonus on the deposit account. This bonus no longer exists.

9.    Taxation: No TDS is applicable for the POMIS. It doesn’t fall under section 80C of the Income Tax Act and is taxable.
 

How does POMIS Works?

Opting for a Post Office Monthly Income Scheme (POMIS) investment is easy with minimal documentation. However, before that, you need to decide if you want to have an individual or joint account. Accordingly, you can deposit the amount.  

Suppose, you invest ₹4,50,000 in a 5-year POMIS term. At an annual interest rate of 6.6%, you should receive a fixed monthly payment of ₹2,475, using the Post Office Monthly Income Scheme calculator available online. You will get the deposited money back at the end of the investment period

You can withdraw the money in 2 ways: directly from the Post Office or deposited into savings account via ECS. You are allowed to withdraw the money every month. However, the investor can let it accumulate over a few months and then withdraw it, but it's not conducive as idle money will not earn you any interest.

Eligibility Criteria for POMIS

The Post Office MIS scheme is structured for risk-averse investors. Firstly, it is a government-backed investment instrument which makes it nearly risk-free. Secondly, it provides a fixed monthly income, so investors looking for a source of fixed income are the most suitable investors. It is apt for senior citizens and retired professionals looking for a regular income to sustain their lifestyles. The eligibility criteria include the following.

●    The investor should be an Indian resident. NRIs are barred from investing in POMIS.
●    Anyone above 10 years old can invest in POMIS in their name.
●    You can open an account individually or with up to 3 people.
 

How to Open a POMIS Account?

To open a POMIS account, you need to have a savings account with a Post office. After that, you can follow the steps below.

●    Fill up a POMIS form from your nearest Post Office.
●    Submit it with the required documents like ID proof, address proof, and Passport-size photos. Take the Original as well as the photocopies of these documents for verification.
●    Get the nominee’s signature.
 

Post Office Monthly Income Scheme vs. Monthly Income Plans?

With the inter-usability of terms like monthly income schemes and monthly income plans, it is confusing for people to understand the difference. Monthly income plans are of two types: Mutual Funds and Insurance. The distinct differences between these three are listed below.

POMIS Revised Interest Rate

In the Post Office Monthly Income Scheme, monthly interest payments plummeted from 8.40% to 6.60%. Before April 1, 2016, the interest rate was 8.40%. Here, it is essential to know that interest income from this system is taxable. Moreover, a person can invest up to Rs. 4,50,000 in the monthly income scheme of the post office. This amount includes a share of the joint account. The minimum deposit amount is Rs. 1,000, and deposits are accepted in multiples of Rs. 1,000.

Benefits of Post Office Monthly Income Scheme

Post Office MIS scheme provides the following benefits.
●    Safer investment option as it is a government-backed scheme
●    Being a fixed-income scheme, the money invested is not exposed to market risk and is very safe
●    You can start with as low as Rs. 1000
●    You earn guaranteed and fixed return every month
●    You can receive monthly interest directly from the post office or have it automatically deposited into your savings account. Reinvesting interest in SIP is also a lucrative option
 

Documentation Required

The documents required for POMIS include-
●    ID proof: A copy of a government-issued Identity card such as a Passport, PAN card, Voter ID card, or Aadhaar card, etc.
●    Address proof: A copy of government-issued ID cards or recent utility bills like- the electricity bill, gas bill, etc
●    Photographs: 2-4 Passport size photographs