A key goal of financial planning is to seek out such investment avenues which generate periodic and steady income. Among a wider investment portfolio, instruments which provide for such income help form the base of the eventual corpus.
In order to ensure a steady stream of income, you can look towards various sources in the financial market. One of the most sought after instruments is a fixed deposit (FD). These can be issued by banks, post offices or corporates. Others include small savings schemes, annuities, and monthly income plans offered by mutual funds.
Let’s look at the different types of instruments available to you.
Bank and Company FDs:
A bank FD is a form of a deposit scheme under which you can deposit any amount above the minimum threshold with a bank and earn interest on the same. This minimum threshold can vary among banks but is typically Rs 1,000; there is no maximum deposit limit. The period for which an FD can be opened is usually 7 days to 10 years. The interest rate offered varies with tenor and is different for different banks. You can choose the frequency of interest payment like monthly or quarterly when opening a bank FD.
A Non-Banking Financial Company (NBFC) or a Housing Finance Company (HFC) offers a company FD. The primary attraction of this instrument is the high FD interest rate offered on them. The interest payout typically is quarterly or half yearly. Company FDs are rated by rating agencies like CRISIL, ICRA, and Fitch. A higher credit rating signifies better payout ability of the company whose FD is being assessed. For instance, Bajaj Finance Fixed Deposit is rated high on stability and safety with ICRA’s MAAA (stable) rating and CRISIL’s FAAA/Stable rating. You should check for these credit ratings before investing in any company FD so that your investments are never at risk.
Since FD interest rates keep fluctuating, laddering is the best approach to follow when investing in fixed deposits. With this approach, you invest in multiple FDs spread across different lenders at varying times and for varied tenors.
Post Office Savings Schemes:
Post offices provide two products which can suit your requirement of a monthly income.
The first is the Post Office Time Deposit Account which functions similar to a bank FD with the exception that though interest is calculated quarterly, it is paid annually. You can transfer a post office FD to any post office in the country, and there is no limit on the number of FD accounts that can be opened at a post office.
The second is the Post Office Monthly Income Scheme Account (MIS). The maturity period of an MIS account is 5 years, but the interest is paid out monthly. The minimum amount required for this scheme is Rs 1,500. The maximum limit for investment in a single account is Rs 4.5 lakhs and Rs 9 lakhs in a joint account. Similar to a post office FD, an MIS account can be transferred to any post office in India. There is also no limit on the number of MIS accounts that can be opened at a post office subject to the aforementioned maximum investment limits combined across all such accounts.
Senior Citizen Savings Scheme:
This scheme is provided by Indian post offices to investors who are over 60 years old. For those citizens who have opted for the Voluntary Retirement Scheme (VRS), the age criterion is reduced by 5 years to 55 years or above. It is important to note that this account needs to be opened within the first month of receiving retirement proceeds.
The drawback of this scheme is that apart from those retiring on superannuation or as mentioned above, no one else can make use of this scheme.
Insurance companies have annuity products which offer regular income. In this, you can make a lump sum payment and receive proceeds at fixed periods. These products are offered in two forms – deferred annuity and immediate annuity. The former begins after a certain fixed tenor chosen by the investor while the latter begins immediately after the lump sum amount is paid.
A drawback of this product is that it comes with several charges like surrender fees and commissions. Further, it does not provide any tax benefits.
Mutual Fund Monthly Income Plans –
Monthly payout of mutual funds is one way of getting a fixed income, however, the returns overall are linked with the market of the proportion invested in Equity. This has 70-80% investment in the fixed options like certificate deposits. There are no tax benefits, and charges like expense ratio are reduced from returns.
From all the above options, FDs come out as strong contenders for regular income for families. One of the main criteria for choosing a fixed return is safe, steady and higher return.
Among the various FD schemes available in the market, Bajaj Finance Fixed Deposit offers all the benefits without the aforementioned various risks in the industry. It offers competitive interest rates and also offers an online FD calculator to help you understand the maturity value of your investment.
You can start investing in Bajaj Finance FDs, and opt for periodic payouts, with a nominal investment of INR 25,000 and earn periodic interest payouts. The ease of operations in terms of FD account opening, online tracking and management of FDs, and renewal benefits make it a preferred choice among investors looking for stable monthly income and a good return on investment on their savings.