We heard of pay cuts and pink slips every other day in past year or so. The loss of active income source or reduction in the monthly take-home was coupled with burgeoning costs of daily necessities. It is in such tough times that one realizes the importance of having a passive source of regular income.Gone are the days when only retirees would need a steady source of passive income. Individuals today are increasingly looking for options to supplement their active income by passive incomes such as rent, interest and dividend income. There are few options which can provide a regular source of income. Here are some of the options available for a steady passive income streams:
Post office monthly income plan (POMIS)The post office monthly income plan (POMIS) offers a fixed monthly return in the form of interest and you can deposit a maximum of Rs 4.5 lakhs and Rs 9 lakhs for single and joint accounts respectively. The POMIS earns interest at eight percent per annum and though there are no tax benefits and interest is taxable , no tax is deducted at source on the interest.
The tenure is fixed for six years and there is a five percent payout in the form of bonus on maturity. The POMIS can act as a safe source of additional monthly cash flow which can be either used to meet expenses or ploughed back into investments, depending on the situation.
Bank fixed deposit
Instead of opting for a cumulative deposit, you can opt for the monthly or quarterly interest payment facility. Bank deposits are extremely low risk and offer good flexibility in terms of tenure, but there are no tax benefits (except five year deposits that qualify under Section 80C). The interest rates are governed by the ongoing interest rates in the economy.
Corporate fixed deposit
Companies offer fixed deposits which usually provide a higher rate than bank fixed deposits, the reason being that they are unsecured and hence the risk is higher. There are different options for payment of interest (monthly, quarterly etc) which can provide a regular source of income. It is prudent to invest only in deposits of reputed companies with a superior credit rating.
Debt mutual funds
There are a wide variety of debt mutual funds such as liquid funds, short-term debt funds, income funds, and gilt funds. These are distinguished by type, credit quality, nature of securities they invest in and length of maturity of the securities . These funds come with a dividend payout option which can be weekly, monthly or quarterly.
A portion of the total debt in your overall asset allocation can be invested in these funds to serve the dual purpose of allocation to debt as well as earning regular income. However, you should be diligent to select the right fund based on the credit quality, average maturity of the securities and interest rate environment.
Monthly income plans of MFs
The monthly income plans (MIPs) usually invest 15-30 percent of the corpus in equity and the remaining in debt. These plans have an option of monthly or quarterly dividend payment, though not assured. With the markets gaining some momentum, these plans are back on track with respect to dividend payments.
Withdrawal plans of mutual funds
A lump sum investment in a fund entitles you to withdraw regular amounts monthly or quarterly. The returns are not assured and there may a risk of withdrawing capital itself if withdrawals exceed the returns. But it is tax-efficient as the returns are treated as capital gains.
There are other income-generating options such as Senior Citizens' Savings Scheme and annuities from insurance companies but these are more relevant after retirement. While one must opt for growth of capital in the early stages of life, building up a stream of income which is not dependant on job, profession or business is equally important to provide for a rainy day.
Source: EconomicTimes.com
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