Post Office Monthly Income Scheme (MIS)

The Post Office’s Monthly Income Scheme (MIS) is a blessing for investors in times of falling deposit rates. A higher interest rate of 8% and an effective yield of 10.5% make it an attractive proposition.

The post-office monthly income scheme (MIS) provides for monthly payment of interest income to investors. It is meant for investors who want to invest a sum amount initially and earn interest on a monthly basis for their livelihood.  The MIS is not suitable for an increase in your investment. It is meant to provide a source of regular income on a long term basis.

Amount of Investments
 
 Single account
Joint Account
Minimum Investment
Rs. 1000
Rs. 1000
Maximum Investment
Rs. 3 lakhs
Rs. 6 lakhs

Lock in period:

The duration of MIS is six years.  However, premature closure of the account is permitted any time after the expiry of a period of one year of opening the account. Investors can withdraw money before three years, but at a discount of 2%. Closing of account after three years have 1% deduction.
 
Returns:
The post-office MIS gives a return of 8% plus a bonus of 10 per cent on maturity. However, this 10 per cent bonus is not available in case of premature withdrawals.  No bonus shall be paid on deposits made in accounts opened on or after 13 Feb, 2006.
 
Tax Considerations:
  • Interest is liable to tax 
  • Balance exempt from wealth-tax 
  • No TDS from interest
Other considerations:
  • Only one deposit is permitted 
  • Provides a secured monthly pension 
  • Nomination facility is available 
  • Only individuals can open the account (either single or joint)
How Does it Work?

Suppose Mr A invests Rs 90,000 in Bank FD for six years. With the rate of deposit hovering around 7%, Mr A will receive almost Rs 46,500 as interest at maturity and an option of compounded interest. On the other hand, if Mr B put Rs 90,000 into MIS today, he will receive Rs 600 every month for 72 months. He is entitled to Rs 43,200 in the form of monthly interest till maturity and Rs 4500 as bonus at the time of maturity. Mr B’s returns total Rs 47,700 in six years, which is higher than interest earned on the bank FD of the same tenure.

Suppose that Mr B did not require the monthly interest. So he opts for automatic transfer of MIS interest to Recurring Deposit. A sum of Rs 600 is deposited in his RD account every month, offering 7.5% per annum compounded quarterly. At the end of the sixth year, Mr B will receive almost Rs 51,400 from his RD account. The receivables from RD and the bonus on MIS total Rs 56,000 in six years. As a result, Mr B, who invested in MIS and monthly proceeds in RD, will accumulate Rs 9500 more than Mr A, who opted to invest in Bank FD of the same tenure.
Feature

Interest rate of 8.5% per annum payable monthly w.e.f. 01.04.2012

Maturity period is 5 years.

No Bonus on Maturity w.e.f. 01.12.2011.

No tax deduction at source (TDS).

No tax rebate is applicable.

Minimum investment amount is Rs.1500/- or in multiple thereafter.

Maximum amount is Rs. 4.50 lakhs in a single account and Rs.9 lakhs in a joint account.

Auto credit facility of monthly interest to saving account if accounts are at the same post office.

Account can be opened by an individual, two/three adults jointly, and a minor through a guardian.

Non-Resident Indian / HUF cannot open an Account.

Minors have a separate limit of investment of Rs. 3 lakhs and the same is not clubbed with the limit of guardian.

Facility of premature closure of account after 1 year but on or before 3 years @ 2.00% discount.

Deduction of 1% if account is closed prematurely at any time after three years.

Suitable scheme for retired employees/ senior citizens and for those who need regular monthly income.

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