Should You Invest In Post Office Schemes Or Mutual Funds?

By | December 28, 2017

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.

Should You Invest In Post Office Schemes Or Mutual Funds?

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.


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.

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