Monthly Income scheme from the Post Office (POMIS)

We have a monthly income scheme from the post office.

Interest rate: 8.4% pa (payable monthly)
Maximum Investment: 4.5L (individual) and 9L (joint)
Nomination facility: Available
Transferable: Yes
Can I open multiple accounts: Yes but sum of all can't exceed the max amount mentioned above.
Maturity Period: 5 years

So, here one can get a monthly income of (4.5L * 8.4/100 = 37800/12 =) 3150 Rs
For 9L, it will be 3150 * 2 = 6300 Rs

One can use this option in many ways:

• Get the monthly income and use to buy an SIP in a fund
• Get the monthly income and use it to make an RD (monthly investment amount)

 Let me know if you ca think of some other ways on the same.

Generating income using MIP

Here we will discuss an idea to generate some monthly income using MIP.
I will use the "HDFC MIP LTP (Monthly dividend)" for the same.

As per http://www.moneycontrol.com/india/mutualfunds/mfinfo/dividend_history/MHD042
one can see that this MIP fund has given a monthly dividend of 0.07 (avg) for quite some time.
The dividend has been increasing with time.

It does invest in Equity and hence the returns can get affected in a bear market scenario.
Reverse is also true -- in bull market the return will go up.

How much return one can get via dividend?
If one compounds it monthly, the return is close to 6-7%
Pretty average isn't it?
However, a 1 Rs increase in NAV makes the return shoot up.

Whats the suggestion?

One can start with an initial investment (plus SIP) into this fund in Dividend reinvestment mode.

e.g
If one invests 3L in this fund, the monthly dividend is:

No. of units: 300000/14.5 = 20689 units.
Dividend per month: 20689 * 0.07 = 1448 Rs
If reinvested: 1448/14.5 = 99 units.
If you do a simple excel calculation, you shall realize that 20689 units in Dividend Reinvestment option (kept untouched) will grow to 37052 units in 10 years.

So in 10 years, 37052-20689 = 16363 units (if cost of NAV is still 14.5 Rs, then the amount is 16363 * 14.5 = 237263).

Here, I have assumed:
- Dividend will remain at 0.07 Rs (which is not true. It can go up or down).
- NAV remains at 14.5 (which is not true. It can go up or down).

However, its another way to generate some monthly income.

Thoughts?

Recurring deposit to generate monthly pension

Recurring deposit to generate monthly pension

We have an article which highlights how to use RD for generating a retirement corpus.
However, we can use RD to also generate a monthly pension.

How?

Create a RD for 10 years (1000 per month). Note that you need to create a fresh RD every month for 12 months.

Assumptions:

• The investor is 30 years old and needs to retire when he/she is 60 years old.
• 10 year RD rate is 8.25%

Plan:


Create a RD for 10 years (1000 per month). Note that you need to create a fresh RD every month for 12 months.





Thus at the end of twelve months, the monthly outgo will be 12000 per month.
At the end of ten years, for the next one year, you will get a pension of 186201 per month.

One can put this amount in any other long term investment option (like NSC/FD etc) and restart another RD scenario for the next 10 years.

 Just my thoughts. Do share if you think there are better avenues.