Monthly Income Scheme (MIS) – Benefits, Eligibility, Interest Rate

What is Monthly Income Scheme (MIS)?

A Monthly Income Scheme (MIS) is a financial product that allows individuals to invest a lump sum amount and receive a fixed monthly income in return. It is typically offered by banks, post offices, or other financial institutions. The invested amount earns interest, and a portion of the interest is paid out as a fixed monthly income. The remaining interest is reinvested, helping the investment grow over time. MISs generally have a fixed tenure, and the monthly income is usually fixed throughout the tenure, although it may be adjusted based on interest rate fluctuations. While MISs are considered relatively low-risk investments, they are not entirely risk-free. The returns from MISs are taxable, and there may be penalties or restrictions associated with early withdrawals. It is important to review the specific terms and conditions of the scheme and consult with a financial advisor before investing.

How Monthly Income Scheme Works?

A Monthly Income Scheme (MIS) works by allowing individuals to invest a lump sum amount in a financial product offered by banks, post offices, or other financial institutions. Here’s a step-by-step explanation of how it typically works:

1. Investment: You invest a certain amount of money, known as the principal, in the Monthly Income Scheme.
2. Interest Calculation: The financial institution calculates the interest on your investment based on the prevailing interest rates and the tenure of the scheme. The interest may be compounded periodically, such as monthly or annually.
3. Monthly Income: A fixed portion of the interest earned on your investment is paid out to you as a monthly income. This income is typically credited directly to your bank account.
4. Reinvestment: The remaining interest earned on your investment, after deducting the monthly income payout, is reinvested in the scheme. This allows your investment to continue growing over time.
5. Tenure: The Monthly Income Scheme has a predetermined tenure, which can vary depending on the scheme and the financial institution. It may range from a few years to a longer period.
6. Fixed Monthly Income: The monthly income you receive from the scheme remains fixed throughout the tenure, providing you with a stable source of income.
7. Taxation: The interest income generated from the Monthly Income Scheme is generally taxable as per the income tax laws of the country. It is added to your total taxable income and taxed at the applicable rate.
8. Withdrawal: In some cases, you may be allowed to withdraw your investment before the tenure ends. However, there may be penalties or restrictions associated with early withdrawals, such as a reduction in the interest rate or loss of some accrued interest.

It’s important to note that the specific workings of a Monthly Income Scheme can vary depending on the financial institution offering it. Therefore, it’s essential to thoroughly review the terms and conditions, interest rates, and any associated fees or penalties before investing in a Monthly Income Scheme. Consulting with a financial advisor or representative from the institution can provide you with further guidance and clarity.

Benefits of Monthly Income Scheme (MIS) 

The Monthly Income Scheme (MIS) offers several benefits to investors. Here are some key advantages:

1. Regular Monthly Income: The primary benefit of MIS is that it provides a fixed and regular monthly income to investors. This can be particularly advantageous for individuals who rely on a steady income stream to meet their financial needs and expenses.
2. Low to Moderate Risk: MIS is generally considered a low to moderate risk investment option. It provides a more stable and predictable income compared to higher-risk investments such as stocks or mutual funds. This makes it suitable for conservative investors who prioritize capital preservation and consistent returns.
3. Relatively Higher Interest Rates: MIS often offers higher interest rates compared to traditional savings accounts or fixed deposits. This means that investors have the potential to earn a more attractive return on their investment.
4. Government-Backed or Secure Institutions: MIS may be offered by government-backed entities such as post offices or reputable financial institutions. This provides a sense of security and trust in the investment, as these institutions are typically considered reliable and stable.
5. Ease of Investment: Investing in an MIS is often straightforward and hassle-free. The process of opening an MIS account is typically simple, requiring basic documentation, and can be done at banks, post offices, or other financial institutions.
6. Tenure Options: MIS usually offers flexible tenure options, allowing investors to choose a tenure that suits their financial goals and requirements. This can range from a few years to longer durations, providing flexibility in terms of investment duration.
7. Tax Benefits: Depending on the local tax regulations, there may be certain tax benefits associated with MIS. In some cases, the interest earned may be tax-deductible or subject to lower tax rates. It is advisable to consult with a tax professional or financial advisor to understand the specific tax implications.

Maximum and Minimum Limits of  Monthly Income Scheme (MIS)

(i) Account can be opened with a minimum of Rs. 1000 and in multiple of Rs. 1000.

(ii) A maximum of Rs. 9 lakh can be deposited in a single account and 15 lakh in Joint account.

(iii) all the joint holders shall have equal share in investment in joint account

(iv) Investment in all MIS accounts opened by an individual shall not exceed Rs. 9 lakh.

Eligibility 

(i) a single adult can invest in Monthly Income Scheme (MIS)

(ii) In joint Account maximum 3 can invest with equal share.

(iii) In case of minor (<18 years) guardian required for opening of Monthly Income Scheme (MIS)

(iv) Minor above 10 years can open account of Monthly Income Scheme (MIS)

Interest 

(i) Interest Payment: The interest on a Monthly Income Scheme (MIS) is typically payable on a monthly basis. It starts accruing from the date of opening the account and continues until the maturity of the scheme.

(ii) Unclaimed Interest: If the account holder does not claim the monthly interest payout, that unclaimed interest amount does not earn any additional interest. It is important for the account holder to actively claim the monthly interest to avoid missing out on potential earnings.

(iii) Excess Deposit: If the depositor accidentally makes an excess deposit beyond the allowed limit, the excess amount will be refunded back to the depositor. Only the applicable interest rate of the Post Office Savings Account will be applicable for the period from the date of opening the account to the date of the refund of the excess deposit.

(iv) Interest Payment Options: The interest earned from an MIS account can be credited through automatic credit into a savings account held at the same post office or through Electronic Clearing Service (ECS). If the MIS account is held at a CBS (Core Banking Solutions) Post Office, the monthly interest can be credited into a savings account held at any CBS Post Office.

(v) Taxation of Interest: The interest earned on a Monthly Income Scheme is taxable in the hands of the depositor. It is treated as income and is subject to tax as per the applicable income tax laws of the country. The depositor needs to include the interest income in their total taxable income and pay taxes accordingly.

Premature Closure

(i) Withdrawal Restriction: According to the terms of the Monthly Income Scheme (MIS), no deposit can be withdrawn before the completion of one year from the date of deposit. This means that the deposited amount is locked in for a minimum period of one year.

(ii) Closure between 1 and 3 Years: If the account holder decides to close the account after one year but before three years from the date of opening, a deduction equal to 2% of the principal amount will be made. The remaining amount after deducting the penalty will be paid to the account holder.

(iii) Closure between 3 and 5 Years: If the account holder chooses to close the account after three years but before five years from the date of opening, a deduction equal to 1% of the principal amount will be made. The remaining amount after deducting the penalty will be paid to the account holder.

(iv) Premature Closure: The account holder has the option to prematurely close the Monthly Income Scheme by submitting the prescribed application form along with the passbook at the concerned Post Office. This means that if the account holder wants to close the account before the completion of the full tenure, they can do so by following the specified process.

Maturity and Tenure 

(i) Closure after 5 Years: The Monthly Income Scheme (MIS) account can be closed on the expiry of 5 years from the date of opening. To close the account, the account holder needs to submit the prescribed application form along with the passbook at the concerned Post Office. After the completion of 5 years, the account holder is eligible to receive the principal amount along with any accrued interest.

(ii) Account Holder’s Death: In the unfortunate event that the account holder passes away before the maturity of the MIS account, the account can be closed, and the amount will be refunded to the nominee or legal heirs of the deceased account holder. The interest will be paid up to the preceding month in which the refund is made.

Interest Rate

Monthly Income scheme have 7​.4​ % per annum payable monthly From 01.04​.2023

Documents Required 

• Two passport size photographs of account holder / holders (in case of joint account)
• Address proof – Electricity bill, Bank statement, Passport, Bank statement, or Phone bill 
• Identity proof –  Such as a Driver’s license, Passport, Permanent account number (PAN) card, Senior citizen ID.

FAQS

Certainly! Here are some frequently asked questions (FAQs) regarding Monthly Income Schemes (MIS):

Q. What is a Monthly Income Scheme (MIS)?

A. Monthly Income Scheme is a financial product that allows individuals to invest a lump sum amount and receive a fixed monthly income in return.

Q. Who Offers Monthly Income Schemes?

A. Monthly Income Schemes are typically offered by banks, post offices, or other financial institutions.

Q. How is the Interest Calculated in an MIS?

A. The interest in an MIS is calculated based on the principal amount invested and the prevailing interest rates. It is typically compounded periodically, such as monthly or annually.

Q. Is the Monthly Income Fixed Throughout the Tenure?

A. Yes, in most cases, the monthly income in an MIS remains fixed throughout the tenure, providing a stable source of income.

Q. Are There Any Penalties for Early Withdrawals?

A. Yes, there may be penalties or restrictions associated with early withdrawals from an MIS. It is advisable to review the terms and conditions of the scheme for specific details.

Q. Is the Interest Earned From an MIS Taxable?

A. Yes, the interest earned from an MIS is generally taxable as per the income tax laws of the country. It is advisable to consult with a tax professional to understand the tax implications.

Q. Can I Close the MIS Account Before the Maturity Date?

A. Yes, MIS accounts can usually be closed before the maturity date. However, there may be penalties or deductions applied depending on the timing of the closure.

Q. What Happens to the MIS Account in the Event of the Account Holder’s Death?

A. In the event of the account holder’s death, the account may be closed, and the amount will be refunded to the nominee or legal heirs. The interest will be paid up to the preceding month in which the refund is made.

Q. How Can I Receive the Monthly Income From an MIS?

A. The monthly income from an MIS can be received through various modes, such as auto credit into a savings account at the same post office, ECS, or direct credit to a savings account at CBS Post Offices.