How to make more money every month

We have heard about the long term investors, short term investors, speculators, and punters. We have seen the hustle-bustle of stock market, green and red lines on charts, and universal fight of bulls and bears. We have seen our fortunes going up and down with stock market.

Beyond all this hustle and bustle, there is a set of investors who want to invest in assets that provide monthly cash flow to meet their expenses. They do not look for a multi-bagger or even high growth but a decent monthly income out of their investment. This article is aimed at people who look for monthly income from their investment.

Even if you do not need it now, keep reading. You will need this when you grow older.

The author is an MBA (Finance) from ISB

What is monthly income plan?

Monthly income plans are investment instruments that provide monthly return on your investment. Individuals have to invest a certain amount of money in such instruments and get pre-defined monthly income or income based on market situation.

Since these plans have to deliver monthly returns, they invest a significant part of their assets in safe instrument such as Government and corporate bonds. Based on the plan and their portfolio allocation, the returns vary between 6 per cent to 12 per cent on average.

How to invest in monthly investment plan?

There are enough investment instruments in the market that provide monthly income. Banks, Governments, and even stock market give you enough options and combination of risks and returns to choose from.

Individuals can invest in monthly investment plan through the following:

Government schemes

Government backed schemes such as post office monthly income plan is very popular among investors. This plan is well suited for investors who cannot take too much risk with their money. By the virtue of being Government-backed, they are risk-free investments.

The interest rate is eight per cent and the maturity period is six years. This means you have to stay invested for six years. If you break it before six years, a penalty will be imposed. The penalty is two per cent if you break it before three years and one per cent if you do it after three years and before six years.

The plan also pays you five per cent bonus at the end of the tenure. Taking the bonus into account, your effective return becomes 8.84 per cent annually. This is a pretty good return from a safe investment asset.

For single account, the minimum investment required is Rs 1,500 per year. The maximum limit is Rs 4.5 lakh. You can also open a joint account with the maximum limit of Rs 9 lakh per annum. You have to invest the money once and get your income every month. If you invest Rs 4.5 lakh in this scheme, your monthly income will be Rs 3,000. The investment can be used for tax deduction under section 80C within the limit of Rs one lakh.

You can visit any of the post offices and start a monthly income scheme. If the specific post office has no facility, they can direct you to the ones that have it.

Bank schemes

Banks keep coming up with monthly income schemes. To cite an example, Bank of Baroda offers a monthly income plan. The investment can be any amount greater than Rs 1,000. The maturity period can be anything up to 20 years.

This is also pretty safe investment as banks rarely go bankrupt, especially large banks. The returns can be anywhere between six per cent and nine per cent. The returns depend on interest rate and hence fluctuation in interest rate can give rise to fluctuation in returns too.

Union Bank of India has come up with another monthly income plan. Investors should keep an eye on the plans offered by different banks.

Mutual fund schemes

There are mutual funds that provide monthly income plan to investors. Mutual funds are riskier than banks' schemes and post office schemes because MFs invest a part of your investment in equity.

They are conservative in nature and major portion of investment goes towards Government and corporate bonds. This is to ensure that investors are not exposed to high risk of equity investment. These funds do not have a fixed rate of return but they pay dividends. The amount keeps changing based on the market situation.

Usually the returns are 10 per cent to 15 per cent depending on market situation and portfolio. The advantage is certainly the high returns but the disadvantage is the exposure to equity markets. There are situations where monthly income plan funds did not pay the investors for many months in a row.

Some of the best monthly income plans, based on their returns, are Birla Asset Allocation Conservative, DSPML Savings Plus Aggressive, Magnum Monthly Income Plan from SBI, and HDFC MIP long term.

Finally...

Monthly income plan is a good alternative to supplement your monthly income from other sources. These plans add stability to your portfolio because of their conservative nature.