The only question that everyone is asking these days is where to invest? The answer to this is not that difficult. One area of investment could be shares,as Indian share market is on a recovery track. But share market has its own risks.The second area could be Gold. But its known that as share market gets bullish,gold prices usually comes down. So this option is also ruled out. Third area could be Fixed deposits in bank(i.e.FDs). Till few years back the rate of interest that banks were offering on FDs was 9%. But this has now declined to around 7%,making FDs less attractive.Besides,the deposit rates are expected to decline further by 50 to 100 basis points.
In this scenario when everywhere the returns are low,there is one area where good returns still exist and that domain is MIS i.e. the post office monthly income scheme. It offers a fixed rate of 8% per annum. The tenure of deposit is 6 years and unlike FDs, interest is paid out every month. Besides MIS offers 5% bonus on maturity.Thus the effective annual yield become 8.9%,which is much higher than the bank deposits. The minimum amount that can be deposited in MIS is Rs 1000 and the maximium amount is Rs 3 lacs(in case of individual account)and Rs 6 lacs(in case of joint account). However,even this return of 8.9% can be further increased with proper planning. The monthly MIS proceeds could be invested directly in post office’s Recurring Deposit,which effectively extends the annual return to 10.5%.
For example if Mr.X invests Rs 90000 in MIS today,he will get Rs 600 every month for 72 months. So,he is entitled to Rs 43200 in the form of monthly interest till maturity and Rs 4500 as bonus at the time of maturity. So his total return would be Rs 47700 in 6 years. But if Mr x do not require the monthly interest ,he can opt for automatic transfer of MIS interest to recurring deposit. A sum of Rs 600 is deposited in his RD account every month,offering 7.5% per annum compounded quarterly. So,at the end of 6 years Mr x will get almost Rs 51400 from his RD account. The recievabales from from RD and the bonus on MIS amounts to Rs 56000 in 6 years. On the other hand if Mr x had invested in a bank FD,he wouldnt have earned more than Rs 45000(average).