Author: Rupanjali Mitra Basu

Life is full of surprises. Understanding and planning before any unforeseen events give you the benefit of financial stability. Knowing your financial requirements and retirement plans can give you an upper hand in choosing the optimal insurance scheme. Both life and annuity insurance are great long-term insurance schemes. However, they differ in their meanings, benefits, terms and conditions.

Life insurance provides financial support to your loved ones after your death. It has monthly premiums, and rider advances. Annuity, on the other hand, is a retirement scheme that provides financial security to you after your retirement age. 

In other words, life insurance is helpful if you die before your policy term period, whereas the annuity is helpful if you outlive your tenure period.

What is a life insurance policy?

Life insurance is a contract between you and your insurer. The contract sets out how much coverage you have purchased and any other important details. A life insurance policy consists of many different components that fit together to create the overall insurance contract. The information you provide when you apply for a policy is one of those components. To enforce the contract, the life insurance application must correctly state the insured’s previous and present health issues and high-risk behaviours.

How does a life insurance policy work?

When working out annuity vs term life insurance, it is important to understand the working of each. The life insurance policy provides financial support to the insured individual’s family after the individual dies. The insurance policies are secured contracts. They provide financial benefits to help the family bear the financial loss that the death of the insured would cause.

• The insured individual must pay a premium in instances of 12 or as yearly premiums, depending on his/ her preference
• If the insured individual dies during the term of the policy, then the assured sum goes to the appointed beneficiaries
• Some types of insurance plans also provide maturity benefits. The insurance company pays the assured funds if the individual outlives the policy tenure
• The beneficiaries must make a claim to receive the assured sum
• The funds can be claimed by providing the death certificate of the insured individual. Once verified, the beneficiaries receive the funds.

Types of life insurance policies

Life insurance is important and offers a broad scope of coverage. A life insurance policy’s principal goal is to safeguard your family’s financial security when you pass away. Thus, before deciding to take the life insurance, check on the types of life insurance and what each life insurance has to offer.

The different types of life insurance plans are:

1. Term Life Insurance:

   Term life insurance provides basic coverage that allows you to select the length of time you need it. This is a great way to protect your family in the event of your untimely death. Term policies are great for financially independent adults who don’t want or need coverage beyond the amount selected. Term plans are pure life insurance plans with no maturity benefit.

2. Endowment Plans:

   There is a death as well as maturity benefit in endowment plans. It provides coverage for your untimely death along with an element of savings. These plans can be pure endowment plans, money-back plans, child plans, etc. However, these plans are traditional insurance plans with guaranteed benefits along with bonuses, if applicable.

3. Unit Linked Insurance Plans:

   In these plans, the policyholder can choose to participate in the market through investments. Here there are no guaranteed benefits as both the death as well as maturity benefit would depend on the market performance, subject to a minimum of the pre-defined sum assured.

Benefits of life insurance policies

Let us take a look at the benefits of a life insurance policy that you can expect to receive:

1. Protection against Mishaps

   Having a life insurance policy gives your and your family a secure future. It also safeguards the interest of people whose incomes are slightly decreasing with increasing age.

2. Tax Benefits

   This area of life insurance policy provides the policyholder with tax benefits. The Income Tax Act under Section 80C provides that the death benefit, or amount received as proceeds under life insurance, is exempt from tax. The premium paid toward the life insurance policy can also be claimed up to INR 1.5 lakhs.
   Also, the maturity benefit, wherever payable, is tax-free under section 10(10)D subject to the terms and conditions.

3. Loan Options

   Most life insurance companies, especially endowment plans, give you the benefit of taking a loan against the policy if you are in need of money upto 80-90% of the surrender value of the plan.

4. Assured Income

   This section provides your family with an assured income. You can choose a lump sum payout at the time of your death, at a regular time interval or a combination of both. With this money, they can pay electricity bills, house rent, children’s school fees and many other things. This means even after your death your family will be fully financially secure.

What is the meaning of Annuity?

An annuity synonymously with ‘pension’ is a series of regular, predictable cash flows guaranteed for the rest of your life. This is done by making a lump sum/ systematic investment. The payment you receive is generated from the investment that is done by the financial company. This is a good choice of income after retirement that gives you the freedom to plan your retirement. You can choose the frequency of your pension, it can be monthly, quarterly, half-yearly or yearly. 

How does an annuity work?

An annuity plan is a long-term investment scheme. Here the insured individual must pay a lump sum or a series of payments and receive funds regularly from the insurance company.

• An annuity is an income provided to the annuitant after the vesting age.
• So, once you invest in an annuity plan, you need to choose the age from when you wish to receive the annuity. Usually, that is closer to 55 to 60 years of age. This is called the “Vesting Age”
• The time from when you invest till the vesting age, is called the Accumulation Phase, wherein you are expected to create your annuity corpus from where you would be provided with an annuity according to your choice.
• At the time of vesting, you have the option of choosing the “type” of an annuity from the available options such as:
  • Life Annuity, i.e. annuity would be paid to the annuitant as long as he lives but nothing would be paid to the nominee after his death
  • Joint Life Annuity, i.e. annuity would be paid to the annuitant as long as he lives and after his death, the annuity would continue to be paid to the spouse as long as she survives. However, once both die, the policy would be terminated and nothing would be paid to the nominee
  • Life Annuity with Return of Purchase Price, i.e. annuity would be paid to the annuitant as long as he lives and after his death, the nominee would receive the entire purchase price as death benefit and the policy would be terminated.
  • Joint Life Annuity with Return of Purchase Price, i.e. annuity would be paid to the annuitant as long as he lives and after his death, the spouse would continue to receive the annuity. When both die, the nominee would receive the entire purchase price as a death benefit and the policy would be terminated.
  • Annuity Certain of 5/10/15/20 years, i.e. the annuity would be paid for a minimum of 5/10/15/20 years and then as long as the annuitant survives.

Types of Annuities 

Annuity is classified into two main types: immediate annuity and deferred annuity

1. Immediate Annuity

   Immediate annuity gives you the benefit of immediately receiving the payments after your very first investment. Unlike other types of annuities, the payment can be received immediately, often with interest, which makes this instrument attractive to people who want to plan their future pension income.

2. Deferred Annuity

   A deferred annuity agreement is a form of an annuity in which the annuity/ income is not available to the investor until a date in the future, at the vesting date. At the time of vesting, the annuitant can withdraw a maximum of 1/3rd of the total corpus tax free under section 10(10)A and need to opt for an annuity from the remaining 2/3rd of the corpus.

Benefits of Annuities

Buying an annuity has many benefits, the biggest being the peace of mind for retirement or as a way to supplement retirement. Some of the major benefits of annuity include

1. Tax-efficient:

   The premium paid towards deferred annuity plans is tax-free under section 80CCC of the Income Tax Act 1961 upto INR 1.5 lakhs a year.

   At the time of vesting, the annuitant receives an option of withdrawing 1/3rd of the entire corpus tax-free u/e 10(10)A which can take care of the immediate retirement expenses. The remaining amount has to be converted into an annuity, which is taxable in the hands of the annuitant.

2. Flexibility

   The timing of starting your annuity is flexible, allowing individuals to defer the purchase of an annuity until later in life when their retirement income goals may have a smaller impact on lifestyle adjustments.

3. Growth in income

   Annuities can provide the substantial income that individuals are seeking to supplement or replace their income.

4. Intergenerational equity

   An annuity allows the annuitant to be provided with dependable income for its expected lifespan. You have the confidence that even after you stop working, you will be able to live your second innings with pride without having to depend on anyone else financially

Differences between life insurance and annuity plan

Both annuity and life insurance are great financial plans. Despite the saving options and similar ideologies, they differ in many aspects. Understanding these differences will help you make the best choice to invest your funds.

What to choose between life insurance and annuity?

When comparing life insurance vs annuity, the key factor is to determine the purpose of buying the financial product. Before choosing any such plan, assessing your financial well-being and requirements is ideal. Knowing your future needs and priority, you can opt for life insurance or an annuity plan. 

Life insurance provides financial support to the family after your death. It can take care of your loved ones’ everyday expenses and other financial needs. Annuity plans provide a regular income to you and/ or your spouse once you retire/ stop working. It is a retirement plan to benefit yourself in your elderly age when you are no longer employed.

Life insurance benefits your family if you die prematurely, whereas annuity benefits you to live comfortably in your retired life. 

Conclusion

Financial stability is vital in all phases of life. Depending on your priority and financial requirement, you can opt for life insurance or annuity plans. Both plans provide great benefits to the insured individual one way or another. 

Tackling unexpected events can be difficult, especially if it’s a matter of life and death. Make sure you plan on how you save your funds so that when such unforeseen events occur, you have the basic support to control the extent of damage that might occur. 

If you want to provide financial stability for your family in your absence, then life insurance is a great choice. However, an annuity will be the ideal option if you want to secure your retirement plan.

FAQs

1. What if the insured individual dies in an annuity plan?

   Depending on the kind of policy opted, the assured sum is provided to the beneficiaries on the insured individual’s death. Similarly, the annuity may/may not continue for the spouse. For the same reason, it’s important to mention the details of the beneficiaries in the annuity plan to ensure it reaches the right hands instead of landing in any financial institution.

2. Can annuity plans be considered life insurance?

   Even though an annuity can cover death after the individual dies, it cannot be considered life insurance. It’s rather the exact opposite of life insurance. In life insurance, you ensure to get benefits after your death, whereas in an annuity, you provide financial benefits when you outlive your life expectancy.

3. What are the benefits of buying life insurance instead of an annuity plan?

   Life insurance provides death benefits and tax exemptions, whereas annuity plans do not provide such benefits. However, one would not be able to suffice and thus it is suggested that you weigh the pros and cons of each before making an investment.

DISCLAIMER

This article is issued in the general public interest and is for educational purposes only. The blogs should not be used as a substitute for competent expert advice from a licensed professional to best suit your needs. Insurance is a subject matter of solicitation. For more details on policy terms, conditions, exclusions, limitations, please refer/read policy brochure before concluding sale.

Though the evil of gender discrimination still exists in India, things are changing slowly yet steadily. With girls competing in just about every field, be it academics, sports, or competitive fields. The societal role of girls is evolving. From time to time, the government also takes initiatives to uplift the status of girls and women. The “Beti Bachao aur Beti Padhao” campaign has been aggressively encouraged to abolish discrimination against girls. Sukanya Samriddhi Yojana plan is one such highly-applauded initiative by Prime Minister Narendra Modi for the welfare of the girl child. 

The scheme gives an investment opportunity to the parents of the girl child under the age of 10 years for their education and marriage finances. The program offers a doorway for every girl in the country to access education without financial constraints.

Sukanya Samriddhi Yojana benefits and features 

Along with educational and marriage financing, the Sukanya Samriddhi Yojana plan has many other advantages making it one of the best investment schemes for the female child.

• Sukanya Samriddhi Yojana scheme is a small savings-based government scheme initiated in 2015 and the Beti Bachao, Beti Padhao Yojana campaigns. 
• The scheme aims to protect and save the future of girl children by providing financial support.
• Parents or guardians can start investing in the Sukanya Samriddhi Yojana plan on behalf of their girl child and save money for her future.
• You can withdraw 50 % of the SSY account balance for higher education or school fees by submitting the educational organisation admission proof to cover the maximum education financing burden.
• Affordable monthly investment, with a minimum deposit of INR 250
• You can also enjoy tax exemption benefits on the amount received at the maturity under section 80 C of the Income Tax Act
• Competitive interest rates, compared to other government investment schemes, the Sukanya Yojana has a high return interest rate of 7.6% p.a.
• Flexible instalments, pay whenever you want and any amount according to your convivence
• Available at any every government bank and post office near your home
• Anyone with a girl child under 10 years of age can apply for the scheme
• The scheme is suitable for people from every walk of society.
• The deposits accumulate along with high-interest rates and can be withdrawn fully after 21 years or partially once the child turns 18 years.

Key Highlights Of Sukanya Samriddhi Yojana Scheme

Interest rates offered by Sukanya Samriddhi Yojana:

To provide the maximum benefits for the girl child in terms of financial and educational benefits, the government allocates high-interest rates for the SSY scheme. 

• Government usually assigns the interest rates every quarter of the annum
• When it was introduced in 2015 the government gave an interest of 9.2% per annum
• As of the financial year 2022 – 2023, the interest rates are 7.6% per annum
• Regarding interest on the ‘Account under default’ accounts (those accounts where no minimal deposits were made during the entire financial year) the interest is added using the post saving accounts. However, this doesn’t apply when the guardian who opened the account is dead.

Calculation of Sukanya Samriddhi Yojana interest 

To understand the Sukanya Yojana benefits, it is important to understand the calculation of the Sukanya Samriddhi Yojana’s interest. With a fixed return of 7.6%, let’s see how the maturity amount can be calculated. The formula to calculate the amount is:

Here, 

• A stands for the Compound Interest
• P stands for the Principal Amount
• n is the number of times the interest is compounded in one year
• t is the number of years
• r stands for the rate of interest.

Sukanya Samriddhi Yojana Calculator 

The manual calculations may be cumbersome and quite time-consuming. However, if you wish to get an idea of the variable or the maturity amount, the best way to do so is through the Sukanya Samriddhi Yojana calculator. This free online tool comes in very handy and helps you plan ahead. 

You simply need to feed in the following details:

• The yearly investment you wish to make
• The age of the girl child 
• The starting date/ period of the plan

In a matter of seconds, the calculator will show you: 

• The total investment that you will make
• The tidal interest that you will earn
• The year of maturity of the scheme
• The total maturity value

The calculator will give you an error-free output and you can use it changing the variables time and again. The online tool works efficiently on all kinds of devices. 

Working of Sukanya Samriddhi Yojana Account

Sukanya Samriddhi Yojana is a long-term scheme where a deposit of a minimum of INR 250 and a maximum of INR 1.5 lakhs can be made in a year. The tenure of the scheme is 21 years and it can be purchased for a girl child who is aged 10 years or less. Lets us take this example:

Rajiv and Sonali Mishra were recently blessed with a baby girl. They invested in the Sukanya Samriddhi Yojana when their daughter Megha was just a few months old. Till Megha turns 15, Rajiv will make a monthly/ annual deposit in the SSY. The money can, however, be withdrawn once Megha turns 21. It is for Rajiv to decide if he wants to pay after Megha turns 15, as the 15 to 21 years span requires only voluntary contributions. Once Megha turns 21 they can withdraw the entire amount.

There are also certain circumstances, where partial withdrawals can be made. We will discuss them ahead.

Let us take another scenario. If Rajiv and Sonali invested in the Sukanya Yojana, after Megha turned 5, then the plan would mature only when she completes the age of 26. Rajiv would have to make the contribution till she turns 20, and for the next 7 years, if he wishes to.

Withdrawal rules of Sukanya Samriddhi Yojana

On the maturity of the Sukanya Samriddhi Yojana scheme, the policyholder will get the amount directly to her bank account. But, in case of premature withdrawal, the deposit amount can be withdrawn before maturity only after five years of opening the account. Also, to claim a sum before maturity, you need to meet some criteria, let us take a look:

• If you need money for your daughter’s higher education you can withdraw 50% of the account balance till the last financial year 
• You can make a partial withdrawal if you are planning your daughter’s wedding

You can opt for premature closure of the Sukanya Samriddhi Yojana in the following circumstances: 

• Death of the girl child
• Death of the guardian of the girl child
• The girl child becomes a citizen of another country
• The policyholder is suffering from a life-threatening disease.

Eligibility criteria for Sukanya Samriddhi Yojana

To apply for Sukanya Samriddhi Yojana, there are a set of eligibility criteria for the girl child and the parent.

• The girl child must not be older than ten years of age. Even though a one-year grace period of 1 year is offered, the parent can apply for the scheme before the girl turns 11.
• It is imperative that the person opening and operating the account on behalf of the girl child can be her biological father or her legal guardian.

Documents required to open a Sukanya Samriddhi account:

To open a Sukanya Samridhhi account, you need to submit a set of documents for verification and authentication of the information filled in the application form.

• Account opening application form
• Birth Certificate of the girl child, as the age proof
• Photocopies of the parent or the legal guardian
• KYC documents for ID and address proof
• PAN card
• Driving Licence
• Passport
• Voter ID Card of the parent/legal guardian 
• Job Card signed by a government authority
• Adhaar Card.

Steps to open a Sukanya Samriddhi Yojana account:

Adults can collect the Sukanya Samriddhi Yojana scheme application form from the post office or any registered bank. They can also download the applications directly from the online portals. The adult is expected to fill the form with details needed and submit it back along with the reference proof documents. These include 

• Name of the account holder or the child’s name
• Name of the joint account holder or the name of the parent (or the guardian)
• Child’s birth certificate
• Identity proof of the parent’s or the guardian’s (like passport, Aadhaar card, driving license etc)
• Details about the present and permanent address along with its proofs 
• Details about the child’s medical history
• Mentioning the initial deposit amount and its details like cheque or DD number and date.

Steps to fill Sukanya Samriddhi Yojana account form for the post office:

To open a Sukanya Samriddhi account, you can visit any authorised bank or post office branch associated with this scheme. Here are the steps you might have to follow when you apply in person.

• Collect the application form from the authorised bank or post office.
• Fill and submit the form with necessary details like the name of the child, name of the guardian or parent, address and contact information. 
• You must also submit the supporting ID and address proofs
• Deposit the first investment amount of Rs.250 up to Rs.1.5 lakhs to open the account
• Once the details and funding are approved, the bank or the post office will activate your SSY account
• Once you receive the passbook for the account, you can continue the scheme for the next 21 years.

How to make payment for Sukanya Samriddhi Yojana online?

To open a Sukanya Samriddhi account online, you must install the India Post Payments Bank (IPPB) application on your smartphone. Using this application, you can open and maintain your SSY accounts.

• Download the IPPB app
• Transfer funds from your bank accounts to the IPPB account
• Open DOP products and click the Sukanya Samriddhi Yojana plan
• Fill in the SSY account details and DOP user ID
• Choose the instalment duration and investment amount
• The app will inform you once the account is opened.
• You can use the same application to deposit the funds every year.

Investment frequency under Sukanya Samriddhi Yojana :

You can either choose to deposit once a year or in instalments throughout the year. But, the minimum annual amount that you must deposit is INR 250. To keep the account active, you must deposit the minimum amount every year for 15 years. Payment intervals between instalments are flexible, and you can pay whenever you want. Furthermore, there is no limit to how many instalments you can make per year.

Sukanya Samriddhi Yojana Details in the passbook 

When you open a Sukanya Samridhhi Yojana account you get a passbook. There are no extra fees for the passbook. However, you should carry the passbook with you for depositing your regular or annual instalments at the bank. It is also necessary to submit the passbook at the time of account closure. Furthermore, make sure you update your passbook regularly to record every update of your SSY account. 

List of banks offering Sukanya Samriddhi Yojana

Sukanya Samriddhi Yojana plan can be availed from most government and private sector banks in India. It is also available at local post offices, making the scheme available even in remote and rural areas. You can also apply for the Sukanya Samriddhi Yojana online. Check out this list to know banks that offer the Sukanya Samriddhi Yojana.

• Punjab National Bank
• ICICI bank
• Axis Bank
• Bank of Maharashtra 
• Dena Bank
• Vijaya Bank
• IDBI Bank
• Bank of Baroda
• Bank of India
• Canara Bank
• Allahabad Bank
• Indian Bank
• Punjab and Sind Bank
• UCO Bank
• State bank of India
• Central Bank of India.

Difference between PPF & Sukanya Samriddhi Yojana, and which one is better?

When planning your investments, it is only prudent that you compare the options in detail before committing for the long term. While both the Public Provident Fund and Sukanya Samridhi Yojana are government-initiated, there are many differences in their features as well as the outcome. SSY is basically a welfare scheme for the girl child whereas the PPF allows the investor to earn tax-free interest. Let us take a look at their differences and then analyse their benefits:

Now that you know the differences between the Public Provident Fund and Sukanya Samridhi Yojana, you would be in a better position to plan your finances. While the interest rates may seem quite similar, long-term investment can bring a lot of difference to the final corpus. Keep the pros and cons of both in mind when you compare them and make a well-informed decision.

Difference between Children’s Mutual Funds & Sukanya Samriddhi Yojana:

When it comes to planning for your child’s future, you would always want to make the best decision. With the rising costs of education, it is imperative that you start saving at the right stage. Investing in Children’s Mutual Funds or Sukanya Samriddhi Yojana can be a recurring question in your mind. Let us take a look at their key differences:

Sukanya Samriddhi Yojana is a government-backed scheme that offers you guaranteed returns. Children’s mutual funds on the other hand may seem lucrative because of the high returns they offer, but the element of risk cannot be ignored. So, what should you choose in such a scenario? 

While Sukanya Samriddhi Yojana is an excellent saving scheme, it may not be entirely sufficient keeping in mind the unabated increase in the cost of higher education. Financial experts advise that you follow a more balanced approach and invest in both these options. You have the security and tax-saving benefits of Sukanya Samriddhi Yojana, while Children Mutual Funds can offer you better returns. 

Steps to download the Sukanya Samriddhi Yojana statement

You can download the Sukanya Samriddhi Yojana statement from the bank’s online portals. However, all banks don’t provide these services. If the bank your SSy account is linked with allows you to download statements, then request the bank executives regarding the online account login details like the login ID and password.

• Using the account details, log in to the SSY account from the online portals of the bank.
• The dashboard or the homepage will provide you with your account statements
• Download the details from the same page.

What happens upon less/excess payment for Sukanya Samriddhi Yojana account 

• Less than the minimum deposit
  When the account holder doesn’t pay the minimum value of Rs.250 within a financial year, then the account becomes a ‘default account’. In order to activate the account, the account holder must pay an additional INR 50 as a penalty.
• Excess the maximum deposit
  When the deposits made are over INR 1.5 lakhs then no interest will be included in the additional money deposited. You can withdraw the excess funds anytime you want.

How to transfer an SSY account?

You can transfer the SSY account from one branch to another within the country. Here are the steps you need to follow during the process

• Visit the post office or the bank where you have opened your existing SSY account and request the transfer application
• Fill in the details of the new branch you are planning to transfer the funds and submit it along with the passbook for approval.
• Once approved, the bank will close the existing account and give the customer their bank statements and other details regarding the existing account. 
• You must submit these documents to the new branch where you will transfer the account.
• While opening the account in the new post office or bank, you must also submit additional KYC documents for further verification.

Conclusion

The SSY aims to uplift the lives of the girl child in India. With the Sukanya Samriddhi Yojana benefits like tax reduction and high-interest rates, the girl child is secured with financial support over its tenure phase of 21 years. 

Easy application and minimal investment options make these schemes viable for an average household. Joining the scheme can be the next best thing you can do to financially secure the future of your daughter.

FAQs

1. What is the online payment method for the Sukanya Samriddhi Yojana?

   SSY payment instalments can only be made online if you have IBPP installed on your smartphone.

   • Visit the IBPP app, navigate to the DOP products section and click on the Sukanya Samridhhi Yojana
   • Enter your DOP customer ID and SSY account number
   • Make the payment of the amount you wish to deposit
2. How many accounts can be opened in Sukanya Samriddhi Yojana?

   Only one account can be opened for a female child. Also, only two girl children from a family can opt for Sukanya Samridhhi Yojana. But in the case of twins or triplets girls, more can two accounts can be opened.

3. What are the steps to open the Sukanya Samriddhi Yojana account at the post office?
   To open a Sukanya Samriddhi Yojana account, you need to:

   • Visit your nearest Post Office
   • Fill in an application form and submit the required documents along with it
   • Pay the minimum deposit fee
   • The post office will check the form and approve your application
   • After approval, your account will be opened
4. What is the Sukanya Samriddhi yojana transfer procedure?

   In order to transfer the account, follow the steps given below:

   • Visit the Post Office or Bank in which you have your SSY account
   • You will need to fill in the account transfer form, submit the required KYC documents
   • The bank/post office will verify and send the original KYC documents to the bank/post office you want to transfer your account in
   • When the target bank/post office receives your documents, you can have your SSY account there.
5. Is there a maximum amount that I can invest in the Sukanya Samriddhi Yojana?

   Yes, in a year you can make a maximum deposit of INR 1.5 lakhs.

DISCLAIMER

This article is issued in the general public interest and is for educational purposes only. The blogs should not be used as a substitute for competent expert advice from a licensed professional to best suit your needs. Insurance is a subject matter of solicitation. For more details on policy terms, conditions, exclusions, limitations, please refer/read policy brochure before concluding sale.

What is Post Office MIS?

Under the administration of the Ministry of Finance, the Post office is offering its most reliable services to the citizens of India with the help of its more than 1,55,000 branches across the country. Amidst various schemes issued by the Post office, the Post Office Monthly Income Scheme (POMIS) is considered the most popular because it gives the investors a guaranteed return on their deposited money at the rate of 6.6% per annum. This is their fixed monthly income which the investors who invest in the POMIS get despite the uncertain domestic and global market conditions.

Those investors who are interested in POMIS have to start a POMIS scheme in the post office. It can be owned by a single holder or a joint holder. If the POMIS account holder is minor, then his/ her account is operated by the guardian.

Features of the POMIS scheme

Mentioned below are some of the highlighting features of the Post Monthly Income Scheme

1. Risk-Free Investment

   The biggest advantage of the Post Monthly Income Scheme is that it is a risk-free investment. The investors can invest a minimum of INR 1000 in the scheme. The maximum amount that can be invested in the scheme is INR 4.5 lakh. The investors can get guaranteed returns on their money as the volatile market conditions wouldn’t influence the investment returns of the POMIS.

2. Joint Account

   The Post Office Monthly Income Scheme account can be opened as a joint account. One feature that is added to the joint account is that the investors can invest up to INR 9 lakh in this scheme to get the highest amount of returns.

3. Monthly Income

   The investors receive interest from the Post office Monthly Scheme every month. In this way, the investors get a monthly fixed income on their invested amount.

4. Nominee

   The investor has to fill out the nomination form while opening the POMIS account. If the investor passes away, the nominee will be to claim the invested money of the account holder.

Limitations of the POMIS scheme

As beneficial as the POMIS scheme is with its fixed returns and monthly payments; there are still a few limitations tagging along with the benefits such as,

• The funds invested in the POMIS scheme don’t provide any tax reduction benefit under Section 80C of the Income-tax Act. Individuals must pay the tax for the invested funds.
• If the interest income from every month isn’t withdrawn, they stay idle and do not generate any interest on those additional funds.
• The money income paid by the scheme also falls under the taxable section.

Working of the Post Office Monthly Income Scheme 

• In the POMIS scheme, an individual can invest a minimum of Rs.1000 or multiples of Rs.1000 up to INR 4.5 lakhs per annum. 
• During its tenure period of 5 years, the individual receives an interest calculated income every month.
• The two or three individuals can also open a joint, but the maximum investment limit here would be INR 9 lakhs per annum.
• On the maturity of the funds, the individual can withdraw the entire investment funds without any additional charges.
• However, there are penalties included during the premature withdrawal of the funds. Depending on the year joining, the penalty fee can vary between 1% – 2% of the investment funds.

Let us see this example:

Suppose Mr Rajesh, a 39-year-old bank manager, plans to open a POMIS scheme account at its maximum deposit range of INR 4.5 lakhs for a period of 5 years. Then for that period at the end of each month, he will receive a monthly income of INR 2,475 based on the 6.6% interest rate. The monthly payment continues until his entire tenure phase. Once the account reaches its maturity after 5 years, he can withdraw his total investment of INR 4.5 lakhs without any extra charges. If he wants he can also renew his account. 

Eligibility Criteria for the Post Office Monthly Income Scheme

The following criteria have to be fulfilled to qualify for the scheme:

• Any Indian adult above 18 years can open a POMIS account
• They must be a resident of India; NRIs are not eligible
• Minor who are 10 years of age or above can also have an account on a legal guardian or parent’s name
• The minors can change their account name and claim the funds once they reach the majority.

Difference between Monthly Plans vs Post Office Monthly Income Scheme

When the monthly plans of the mutual funds are compared with the Post Office Monthly Income Scheme, it is analysed that the POMIS scheme is a risk-free investment plan that gives a guaranteed return to the investors. Monthly Income Plans or MIPs of mutual funds are debt-oriented mutual funds but are subject to interest rate sensitivity, which does not exist in the POMIS scheme. Since a part of the investment in MIPs is in equity as well, the element of guarantee is lesser than in POMIS schemes.

Also, MIPs have a tax advantage as investors get to avail of indexation benefits over the POMIS scheme. Both allow liquidity before the end of the term but with a charge. In Mutual Fund Monthly Income Plans, there is no limit for investment whereas in the POMIS scheme one can invest upto a maximum of INR 4.5 lakhs per PAN number.

POMIS scheme is a traditional investment and is trusted by many. Hence it has gained popularity over the years. With the facility of online transactions between post offices and banks according to the announcement in the Budget 2022, the POMIS scheme is expected to gain more popularity.

What are the Post Office Monthly Income Scheme interest rates?

• The account holder of POMIS accounts receives a 6.6% interest on their investments.
• A calculated interest value is given to the account holder on completion of the month from the joining date. This continues until the scheme attains maturity (5 years).
• If the account holder fails to collect the interest, the leftover claim will include no additional interest funds in these funds.
• If the deposit value exceeds the maximum deposit limit, the excess funds are returned, and the interest is calculated only up to the allowable deposit limit.
• The funds received from the scheme are taxable.

Post Office Monthly Income Scheme account opening procedure

It is very easy to open a Post Office Monthly Income Scheme (MIS). If you want to invest in the scheme, a Post Office Savings Account is mandatory. If you don’t have a savings account, you can open it with the Post Office. After that you can go with the following procedure:

• Get a POMIS Application Form from your nearest post office
• You need to submit the form with a photocopy of ID proof, a photocopy of address proof, and 2 passport-sized photographs. 
• You need to submit original ID proof and address proof too for the verification process.
• You need to get the signatures of witnesses or beneficiaries.

Penalty against early withdrawal in POMIS scheme in post office

You are allowed to withdraw prematurely from your POMIS scheme but at a cost. Here are certain norms that need to be followed:

• The account holder must submit the bank passbook and a withdrawal application form at their registered post office to withdraw the funds.
• Individuals cannot withdraw the funds until the scheme attains its 1-year maturity. 
• If the individual withdraws the funds between 1 – 3 years of the tenure period, the scheme will charge a penalty fee of 2% on the initial deposit, and the remaining will be paid.
• If the individual withdraws between 3 – 5 years of the tenure period, then a penalty fee of 1% will be deducted from the initial deposit, and the remaining will be paid.

Who should invest in POMIS?

• The Post Office Monthly Income Scheme is generated by the post office for those investors who are unwilling to take any risk. They prefer to keep their capital intact. They are not very conscious of getting high investment returns.
• Those investors who want a reliable and fixed source of getting monthly income should choose the Post Office Monthly Income Scheme (POMIS).
• The locking period of the POMIS is one year. After one year, the investors will be able to withdraw the money by paying the penalty charges of 1-2%. Those who plan to invest for the long term should invest in the POMIS.
• For those who are uncomfortable investing in the stock market, mutual funds, etc due to the volatile market conditions, the post office monthly scheme (POMIS) is the best option to invest in for the long term. Investors don’t need to analyse the market daily.

Maximum deposit limit under the POMIS scheme

The maximum deposit limit varies depending on the type of account and the account holder’s age.

If the account holders are adults, then,

• Single account – maximum investment is INR 4.5 lakhs
• Joint account – maximum investment is INR 9 lakhs (the individuals must make equal shares of investment. However, each individual’s contribution cannot exceed a maximum of INR 4.5 lakhs)

If the account holder is a minor, then,

• Minor account – maximum investment value is INR 3 lakhs.

Documents needed for POMIS

The documents required for POMIS include:

• Identity Proof

  Photocopy of original government-approved IDs such as Passport/Voter ID card/Aadhar card/ Driving Licence, etc.

• Address Proof

  Original government-issued ID or recent utility bills.

• Photographs

  2 Passport size photographs.

Conclusion 

Government-based schemes always provide you with security for your money. By investing in the POMIS scheme, the individual can enjoy the benefits of complete return along with their monthly income. With its decent interest rate of 6.6%, the scheme allows the account holder to enjoy their money benefits instead of letting them stay idle in their bank accounts. No wonder the elder communities and risk-free investors welcome the POMIS scheme so warmly.

FAQs about the POMIS 

1. Does the Post Office Monthly Income Scheme come with a lock-in period?

   Yes, the POMIS scheme offers a lock-in period of 5 years. After this tenure period, the individual can withdraw their investment. Early withdrawal is possible after 1 year of lock-in; however, it can cause a penalty.

2. Can I purchase the Post Office Monthly Income Scheme for my 10-year-old daughter?

   Yes, for minors aged 10 and above an adult can open a minor account in the POMIS scheme. Once the child reaches the majority, she can transfer the account to their name and claim the funds.

3. If I open a Post Office Monthly Income Scheme joint account, how will the income be distributed?

   The contributors of the joint account receive equal shares of the income transferred to their independent accounts. The joint accounts begin with equal claims of investment made by 2 or 3 investors and equal distribution of the income money generated.

4. Will I be able to reinvest my accumulated fund, once it reaches maturity?

   Yes, you can. Once the funds reach maturity, you can reinvest the accumulated funds in the same scheme for another 5-year tenure. Reinvesting assures you to enjoy the financial benefits for another 5 years.

DISCLAIMER

This article is issued in the general public interest and is for educational purposes only. The blogs should not be used as a substitute for competent expert advice from a licensed professional to best suit your needs. Insurance is a subject matter of solicitation. For more details on policy terms, conditions, exclusions, limitations, please refer/read policy brochure before concluding sale.