Features
Eligibility
You need to be a Resident Indian preferably with a post office savings account
Entry Age
No age limit is mentioned
A minor above age 10 years can open an account on their own name directly
There is a limit of Rs 3 lakhs set for minors to open this account with a guardian, which is not clubbed with the investment limit applicable to the guardian as an independent investor
Investments
Minimum: Rs 1,500
Maximum: Rs 4.5 lakh in a single account
Maximum: Rs 9 lakh in a joint account
Interest
8.50 per cent per annum paid monthly
Tenure
5 years
Account Holding Categories
Individual
Joint
Minor through the guardian
Nomination
Facility is available
The Post Office Monthly Income Scheme (POMIS) is a guaranteed return investment available at the post office. On the deposit that you make with the post office, you get an assured monthly income. Currently one earns an 8 per cent interest per year on the deposit, which is paid every month and hence the name monthly income scheme. Once you make the deposit you get the interest payout each month from the date of making the investment, not from start of the month.
Investment Objective and Risks
The main objective of the POMIS is to provide an assured 8.5 per cent returns paid monthly to the account holder which helps them create a guaranteed regular income. Though it offers no tax incentive, it is a preferred instrument amongst small savers for the government backing that this product offers.
Capital Protection
The capital in the POMIS is completely protected as the scheme is backed by the government of India, making it totally risk-free with guaranteed returns.
Inflation Protection
The POMIS is not inflation protected, which means whenever inflation is above the current guaranteed interest rate of 8.50 per cent; the return from the scheme earns no real returns. However, when the inflation rate is below 8.50 per cent, it does manage a positive real rate of return.
Guarantees
The interest rate in the POMIS is guaranteed and is currently 8.50 per cent per annum and paid out monthly. The interest rates on this scheme will be notified before April 1 of that year, and is aligned with G-Sec rates of similar maturity, with a spread of 0.25 per cent.
Liquidity
The POMIS is liquid, despite the 5-year stipulated lock-in. The liquidity is offered in the form of withdrawals subject to conditions and penalties.
The facility of pledging the deposit in the POMIS account to obtain loan is not permitted as it defeats the purpose of regular income.
Premature withdrawal or closure of the POMIS account is permitted after completion of one year from the date of opening of the account after deducting a penalty for early withdrawal or closure that varies from 1-2 per cent depending on the completed tenure of the account.
If the account is closed on or before the completion of three years of opening the account, an amount equal to 2 per cent of the deposit is deducted and the remainder paid to you.
If the account is closed after completion of three years from opening the account, an amount equal to 1 per cent of the deposit is deducted and the remainder paid to you.
Credit Rating
As the POMIS is backed by the government of India, it does not require any commercial rating.
Exit Option
Premature closing of the account is permitted with penalty.
Other Risks
There is no risk associated with this investment and it is totally risk-free.
Tax Implications
There is no tax benefit on the investment or income earned from this scheme.
Where to open an Account
You can open the account at any head post office or general post office.
How to Open an Account
Once you have selected the post office to open the POMIS account, you will first need to open a post office savings account to link the monthly payout from your MIS account and you will need the following documents:
An account opening form which the post office will provide.
Two passport size photographs.
Address and identity proof such as copy of passport, PAN (permanent account number) card or declaration in form No 60 or 61 as per the Income Tax Act 1961, driving license, voters identity card or ration card.
Carry original identity proof for verification at the time of account opening.
Choose a nominee and get a witness signature to complete the formalities to get started.
How to Operate the Account?
You need a pay-in slip with the initial account opening sum to be credited into your account.
Points to Ponder
Portability of the account from one post office to another
Facility for reinvestment on maturity of the account
Maturity proceeds not drawn are eligible to saving account interest rate for a maximum period of two years
Interest income is taxable but there is no TDS certificate issued
The savings and MIS account have passbooks with rules applicable to the accounts stated in them.
Tips and Strategies
By initiating an investment cycle wherein the MIS sum acts as a recurring deposit instalment results in a higher and more effective return from the MIS. This is a strategy adopted by many who do not need the MIS payout and wish to use it for further assured return.
Getting into a recurring deposit cycle with the POMIS is a good way to increase the returns that one can effectively earn from this instrument.
