If you are planning to leave your job to become an entrepreneur or getting retired after a long working career, all your thoughts would be towards creating a regular stream of income to support your living. For such people, who wish to create some regular income by investing in a financial product, here we come up with 5 safe methods and 5 risky ones to generate regular income in India. So let us start first with safer options.
5 Safe Ways
These ways are ideal for investors who are apprehensive about taking any financial risk. The principal and return are assured in these methods.
Post Office Monthly Income Scheme
In Post Office MIS, a lump sum amount can be invested and monthly income can be earned for the next 6 years. One can get around 8% returns and for the next 6 years earnings can be given in the form of monthly interest. In the end, one will get his principal lump sum amount with a 5% bonus. However, you can invest a maximum of 4-5 lakhs in an individual account and a maximum of 9 lakhs for a joint account.
Monthly interest from Fixed Deposits
This is perhaps the most famous alternative where you receive interest payment every month. It is the safest way one can take and is very simple to opt for. All Bank offers payment of interest on fixed deposit in two ways (i). Monthly payment (ii) Reinvestment. So all you need to do is to opt fr first option while making a fixed deposit. The tenure of the fixed deposit determines the rate of interest. One may get around 8-9%p.a. interest, which is taxable as per individual slabs.
Long term Government bonds
Government bonds are long term and have a maturity period of 25-30 years. They pay around 8% interest, that is variable, on a half yearly basis. You get back the principal amount invested at the end of the bond’s tenure. It is government’s way of raising money and is a very safe instrument. Moreover, if you want to do away with them, you may sell them in secondary markets. The exchange platforms also also has Retail debt segment but it is not very liquid.
With an interest rate of 9% p.a. paid quarterly, this scheme is the best for senior citizens, i.e. those above 60 years of age. Its maturity period is 5 years, and can be extended by another 3 years. Those citizens who are 55-60 years of age and have taken VRS and getting retirement benefits, they too can invest in this scheme.
Annuity from Insurance Companies
Annuity plans can be bought from LIC or some Private Insurance Companies like ICICI Pru life, HDFC life etc. The returns depend on the tenure of pension and the option that you have chosen when you brought the product. However, these plans gives very low returns and many times it is not even known in advance. One should choose this option only if he cannot, due to some reason, avail other alternatives.
5 Risky Ways
These ways are accompanied with risks like asset price fluctuations, income volatility, etc. but generate much higher income and superior returns than the safe options.
The 5 ways discussed below are for the high risk takers:
SWP from Mutual funds
One can make an investment in Debt Mutual funds or Equity Mutual funds and then go for Systematic Withdrawal Plan (SWP). This liquidates a certain number of portions or units out of the mutual fund and it is credited to your bank account. This way of creating income is the opposite of SIP. It is always advisable to go for SWP after a couple of years as there are chances of exit load if started off too early. One should note that if investment is done in equity mutual fund, it may lead to volatility. So it is better to make an investment in the debt funds or balanced funds.
Monthly Income Plans (MIP) of the Mutual funds
MIP provides regular income which depends on the declaration of dividend. Normally Mutual fund offers two type of plan for each scheme (i) Dividend and (ii) Growth plan. In growth plan the income earned keep getting reinvested however in Dividend plan, the income is paid on regular basis (monthly, quarterly or Annually as per your choice). These are little volatile since the earning are determined by the market performance. Interestingly, these MIPs are tax-free.
Dividends from Equity Shares
If you are stock market savvy investor and look forward to participate in Indian growth story, then this could be one of the option. The perfect way for stock lovers, this does not always guarantee income, but if the investment is diversified in among 10-12 stocks, then you can be sure of a regular dividend from one or the other stock. All you need to identify the dividend yielding stocks with consistent track record of paying dividend. Normally the Dividend yield in the select few stocks remain in the range of 2%-5%. It is a risky investment and is quite fluctuating. Still, it is a good option for patient investors who have sound knowledge of the stock markets.
Dividend from mutual funds
It is an ideal option for those who cannot make an investment in equity directly. It will not pay monthly but annually. The best way is to diversify across 3 or 4 funds so that regular dividends do keep coming in.
Rent from Real Estate
Investment in real estate can also generate income through rents. The value of property keeps on increasing, so it is a good option. However this option requires high maintenance. Moreover, getting a good tenant and getting one for months are the associated risks. It is advisable to abstain from taking a property somewhere in the outskirts, rather invest in something in the city.