Creating a source of secondary income is always good. It helps you save more and also covers your unexpected expenses. There are many ways you could earn passive income, and one of the most popular methods is to invest in a fixed deposit monthly income scheme. It offers guaranteed returns and hence is suitable for investors looking for an additional source of income.
What is a Fixed Deposit Monthly Income Scheme?
A fixed deposit (FD) monthly income scheme is a non-cumulative FD. It pays out monthly interest on your deposit for your entire investment duration. The returns are guaranteed; hence it is an effective investment for risk-free investors looking for regular income.
When you invest a lumpsum amount in a fixed deposit monthly income scheme, you will start receiving interest every month from the next month. The interest rate is locked for the entire duration and doesn't fluctuate with the market movements. Moreover, it is a very liquid scheme that allows you to withdraw the investment before the maturity period.
Features of Fixed Deposit Monthly Income Scheme
Following are the features of the fixed deposit monthly income scheme.
- Minimum and maximum deposit amount: The minimum amount of deposit for the monthly income scheme is slightly higher than a regular FD. However, there is no cap on the maximum investment amount.
- Tenure: The tenure for fixed deposit monthly income schemes ranges from two years to ten years. You can choose the tenure based on your goal.
- Interest: The interest is higher than the savings account and is paid monthly.
- Nomination: The monthly income scheme has a nomination facility, and hence you can choose a nominee who will get the benefits of the scheme in your absence.
- Withdrawal: Partial withdrawals are allowed by some banks, making it a very liquid investment scheme.
Benefits of the FD Monthly Income Scheme
Following are the benefits of the fixed deposit monthly income scheme.
- Fixed monthly interest: The scheme pays fixed interest every month, which will be credited to your savings account. Hence can be a great source of secondary income.
- Risk-free investment: As the scheme pays regular interest, despite the fluctuations in the market, it is a risk-free investment alternative for retirees and risk-averse investors.
- No processing fees: Unlike mutual funds, the scheme doesn't charge any processing fee from you to manage your investment.
- Loan facility: Banks offer loans against your investment in a fixed deposit monthly income scheme. The terms of the loan vary across banks.
- Liquidity: You can withdraw your investment anytime, making it a very liquid investment.
Interest rates of FD Monthly Income Scheme
Different banks offer different interest rates for the fixed deposit monthly income scheme. Following are the interest rates of the FD monthly income scheme of some of the top banks in India for senior and regular citizens.
FD monthly income scheme interest rates for regular citizens
Senior Citizen interest rates
How to apply for FD Monthly Income Scheme?
To invest in a fixed deposit monthly interest scheme, you must fill out the application, submit all relevant documents, and deposit money into the scheme. You can do this offline or online.
For offline, visit the nearest branch of the issuer and fill out the application form, submit copies of the documents and give a cheque. In case of online, you can visit the issuer's website, fill out the online form, upload the documents, and transfer funds from your savings account.
Eligibility of FD Monthly Income Scheme
To invest in this scheme, you must be eligible. Following are the eligibility parameters.
- Any individual can invest in the scheme. However, they must be above 18 years of age. In case you are a minor, you can open a joint account with your parents.
- Citizens residing in India or abroad can invest in the scheme.
- Associations, companies and Hindu undivided families (HUF) can invest in monthly income fixed deposits.
Documents required to apply for FD Monthly Income Scheme
You will need the following documents to invest in the monthly income scheme.
- Duly filled and signed application form
- Two passport-size photographs
- Identity proof – PAN Card, Aadhar Card, Passport, voter ID, and driving license
- Address Proof – Aadhar Card, Passport, voter ID, driving license, and latest utility bills
Taxation of FD Monthly Income Scheme
The investment of a fixed deposit monthly income scheme is taxable unless you invest in a tax-saving FD. The interest is also taxable at the investor’s income tax slab rate.
Moreover, banks deduct a tax deducted at source (TDS) of 10% if the interest exceeds Rs 40,000 per annum for regular citizens and Rs 50,000 per annum for senior citizens. A TDS of 20% will be deducted if you don’t disclose your PAN details.
What is the post office's monthly income scheme?
The post office monthly income scheme is similar to the bank fixed deposit monthly income scheme. The only difference is that the government manages the post office monthly income scheme (POMIS). Similar to a bank FD monthly income scheme, POMIS also pays monthly fixed interest.
Following are the features of the post office monthly income scheme.
- Investment amount: The minimum investment amount is Rs 1,500, and the maximum is Rs 9 lakhs.
- Risk-free investment: Since the government manages the scheme, it is risk-free.
- Fixed interest: The scheme pays a fixed interest of 7.4% per annum. The interest rate is decided by the government every quarter.
- Lock-in period: The scheme has a lock-in period of five years; hence, you cannot withdraw your investment before the five years. However, in case you want to withdraw your investment before the lock-in period ends, you will be charged a penalty.
- Eligibility: Only Indian citizens who are residents can invest in this scheme. NRIs cannot invest in the scheme.
- Tax benefits: The investment amount qualifies for tax deduction under section 80C of the Income Tax Act, 1961. However, the interest is taxable at the investor’s income tax slab rate.
Frequently Asked Questions
Can I get monthly interest on FD?
Yes, you can get monthly interest from an FD. You can opt for a monthly payout of interest at the time of investment to get regular interest.
Will I get monthly interest with a monthly income FD scheme?
Yes, the monthly income FD scheme pays interest every month. It will get credited directly to your savings account.
How is the Monthly Interest FD Scheme different from a recurring deposit account?
In a monthly interest FD scheme, you will have to deposit a lump sum amount to get regular interest payouts. However, in a recurring deposit scheme, you will have to invest a certain amount every month to get interest and principal amount on maturity.
Which scheme is the best for monthly income?
There are many monthly income schemes available in the market. The best scheme is the one that aligns well with your goals and risk appetite. Hence it is best to choose a scheme based on your resources and requirements.
How much monthly income can I get from the fixed deposit scheme?
The interest amount is based on the investment made and the interest rate. The interest rate of monthly income schemes varies across banks. Hence the monthly payouts are also different for different banks. You can use online calculators to estimate the monthly income you can get from your investment.
How much can I deposit in the monthly income FD account?
Different banks have different rules for minimum and maximum investment amounts. You must check with your bank to know the minimum and maximum limits. However, most banks do not have a cap on the maximum investment amount for FD monthly income schemes.
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