Savings Tip: Quartelry Income Scheme
Chawanni Advice
masses, especially those retired.
Its features are:
1. Monthly income at the rate of 8% per annum + 5% bonus on maturity
(which works out to be an effective yield of 8.9% )
2. Income is taxable, but no TDS.
Some of its disadvantages are:
1. Interest rates are not in-line with the market rates. As recently
as October-November 2008 when banks were offering more than 10% on
fixed deposits, the MIS interest rate was still 8%
2. There is a ceiling on maximum investment.It is rupees 3 lakhs for a
single account.
3. Cumbersome visits to the post office and sometimes you have to face
long queues ( although this can be resolved by following one of my
previous post <http://chawanni.blogspot.com/2008/12/automatic-transfer-from-post-office-mis.html>
)
4. Restrictions on pre-mature withdrawal. You cannnot close an MIS
account before 1 year.
All the above disadvantages can be overcome by employing the Quarterly
Interest option offered by Bank FDs. Usually when customers open a
fixed deposit ( FD ) with a bank they go for the cumulative option
where interest keeps on accumulating and is paid out only on maturity.
Instead they can go for a quarterly interest option FD where the
interest is calculated and paid out quarterly. Most banks ( public &
private ) offer this option of quarterly interest payout, which can
also be credited to your bank account.
With a litte bit of self-discipline you can use this Quarterly
interest option as a replacement for MIS. Some banks also offer the
monthly interest payout FDs but the interest rate on such FDs is
usually lower ( by around 0.5% ).
Let's see how we have overcome the above disadvantages of PO MIS by
replacing them with Bank FDs:
1. The interest rates are in line with the market rates. If the
interest rates in Banks are higher than POMIS, it makes sense to go
for Bank FDs.
2. No upper limit on investment.
3. Interest can be credited to your bank account directly.
4. No restrictions on pre-mature withdrawal. You can break an FD
whenever you wish to.
Tax-treatment is same as MIS, except for the fact that TDS is applicable.
The original article can be found here:
http://chawanni.blogspot.com/2009/01/savings-tip-quartelry-income-scheme.html