Ever wondered whether you should invest in Post Office Schemes or Mutual Funds? We’ll tell you all you need to know to help you make the right decision.
The government-sponsored Post Office Monthly Income Scheme gives an assured return of 8% payable monthly plus a maturity bonus of 5%. On the other hand, Monthly Investment Plans (MIPs) offer better liquidity as well as returns. This is done by deploying 5% to 25% of total assets in equity and the rest in debt products.
The problem that generally arises for investors is what to choose. Is it better to go for a fixed rate of return or a fluctuating one? If the markets are doing well, it is advisable to invest in MIPs. But if there is a slump in the interest rates, then you might tend to lose out on your savings. This could lead to you taking on debt in the form of a Personal Loan or any other type of loan to finance your requirements.
Additional Reading: Common Mistakes To Avoid When Applying For A Personal Loan
Where And When To Invest?
Senior citizens or persons looking for a fixed monthly return can consider investing in steadily performing MIPs. These should have a good track record of giving out monthly tax-free dividends. Ideally, investors looking at monthly payout MIPs for a longer period should invest at ex-dividend NAV on any particular month so that they get more units.
As a result, the monthly payouts (monthly dividend yields) they get would be high. Investors can choose the growth option if monthly dividends are not required.
Taxation:
The monthly dividends from MIPs are subject to a dividend distribution tax of 13.84% for individuals. However, if you sell the units within a year, the gain, if any, would be subject to your personal income tax slab. If you sell units after a year, a 10% long-term capital gain tax or 20% with indexation would be levied.
The interest income on PO’s MIS would be subject to your personal income tax slab. Therefore the 8% fixed return no longer applies here.
Post Office Schemes Or Mutual Funds: Which One To Choose?
If you are seeking higher returns, then MIP is worth considering. One should invest in MIPs with a minimum investment horizon of 2-3 years. Opt for MIPs for steady returns. However, if you are a conservative investor seeking monthly payouts without taking any market-related risks, then you should stick to post office’s MIS.