Personal Finance

Why POMIS is a safe monthly income option

Satya Sontanam BL Research Bureau | Updated on July 24, 2021

It offers higher interest compared to bank FDs

If you are looking for low-risk investment options that offer regular monthly income, consider post office monthly income scheme (POMIS). This product offers higher interest rate compared to similar fixed deposit (FD) options from banks and is a government-backed savings scheme with a tenure of five years.

The minimum investment amount is ₹1,000. The maximum limit is ₹4.5 lakh in a single account and ₹9 lakh in a joint account (up to three adults). The account can be opened from any post office using identification and address proof, PAN card and two recent photographs for KYC requirements.

Decent returns

POMIS scores over other similar investment options such as fixed deposits of similar tenure offered by banks. The rate of interest in POMIS is reset periodically by the government. The scheme currently offers interest rate of 6.6 per cent per annum for the deposits made up to September 30, 2021. This is relatively higher than the interest rates offered by most banks for their five-year FDs with the monthly pay-out option, including SBI (up to 5.4 per cent) and HDFC Bank (up to 5.3 per cent). Even the small finance banks (SFBs), which usually offer higher interest rates, too fade in front of POMIS. Banks such as Jana, Equitas, and AU SFB offer interest rates up to 6.5, 6.25 and 5.97 per cent, respectively.

While bank deposits of up to only ₹5 lakh are secured by the deposit insurance, POMIS comes with implicit government backing. This comparison becomes relevant when POMIS joint account is opened with investment above ₹ 5 lakh.

On the taxation front, both POMIS and bank FDs do not enjoy any tax benefit-- either on investment or income earned. However, there is no TDS on the interest pay-out from POMIS unlike on FDs.

Premature withdrawal is allowed in POMIS only after a year, but you have to pay a penalty for doing so, similar to bank FDs. If encashed between the first and third year, a deduction of 2 per cent is made on the deposit amount. Between the third and fifth year, the rate reduces to 1 per cent.

Options for seniors

If you are a senior citizen looking for monthly income (SCSS offers only quarterly payout), you may want to compare it with another safe investment option - Pradhan Mantri Matri Vandana Yojana (PMVVY). For financial year 2021-22, the PMVVY scheme shall provide an assured pension of 7.40 per cent per annum (same as SCSS) payable monthly for all the policies purchased till 31st March, 2022. The total investment amount under this is up to ₹15 lakh for a single account. If a couple chooses to invest, both together can invest up to ₹30 lakh.

Though PMVVY scores over POMIS in terms of interest rate, the latter can be your option if you are looking for shorter tenure, liberal lock-in norms and lower minimum investment amount. PMVVY has a policy tenure of ten years and pre-mature exit is allowed only under exceptional circumstances (with penalty) including treatment of any critical/terminal illness of self or spouse. Besides, PMVVY requires a minimum investment of about ₹1.5 lakh. Note that both POMIS and PMVVY have similar tax treatment on investment and interest and no TDS will be deducted on pay-outs.

Published on July 24, 2021

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