The Post Office Monthly Income Scheme (MIS) is quite popular among investors. But is there any way the returns from such a safe investment be enhanced further?
Yes, there is! Read on.
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In “An introduction to Post Office Monthly Income Scheme (PO MIS)”, we saw the various characteristics of the PO MIS scheme. The basic feature of PO MIS is safe, periodic returns. You get a monthly interest on the amount invested. |
But this also means that you just get a simple interest – you get an interest on the original amount invested, but you don’t get any interest on the interest you earn on that amount.
This is because this interest is not invested back – instead, it is given to you every month.
You can increase the overall return from your MIS investment if you do not need the monthly interest. In that case, you can invest this monthly return, and earn interest on it as well!
Thus, effectively, you would earn a compound interest on your original MIS investment!
MIS and Recurring Deposit Combination – The perfect match
Does it sound too difficult? Don’t worry – there is a clean and easy way to achieve this!
In “An introduction to Post Office (PO) Recurring Deposit (RD) Account”, we saw that the post offices in India offer the facility of a recurring deposit account.
What is a recurring deposit account? You invest a fixed sum every month, you earn interest on it, and you get back the amount with interest at maturity.
(To know more about recurring deposits, please read “An introduction to Recurring Deposit”)
So, here we have two products – one that gives you a fixed monthly income, and another that needs a fixed monthly investment.
The conclusion is quite obvious – you can invest the monthly interest you receive from MIS into the RD account, so that you earn even more interest!
How can this be achieved?
So, do you have to go to the post office every month, get your MIS interest money and deposit it in your PO recurring deposit account?
No! In this age of automation, that would be too much trouble!
It’s quite easy: You just have to instruct your post office to deposit the MIS interest in your RD account every month! That’s it – it is a one time instruction that you have to give at the time of opening your MIS and RD accounts!
Advantages
As discussed, the most important advantage is that you earn a compound interest – you earn interest in your original (MIS) investment, and an interest on that interest!
Also, since both MIS and PO RD are operated by the post office, which in turn is operated by the Government of India, the investment is absolutely safe.
Bottomline: You earn even more through risk-free investments!
(Please check “Post Office Schemes: Downloadable Forms” to download forms for opening the PO MIS account, PO recurring deposit account, etc)
Alternatives
Of course, PO RD is not the only avenue for investment that needs monthly investments.
Another good option is to invest the monthly interest from PO MIS into a Systematic Investment Plan (SIP) of a mutual fund (MF) scheme.
(To know more about SIPs, please read “Systematic Investment Plan (SIP) – A rupee a day, keeps worries away” and “More on Systematic Investment Plan (SIP) and Micro SIP”)
Here, you would need to instruct the post office to deposit the MIS interest amount in your bank account, and you would have to instruct the MF to deduct the amount from your bank account.
Also, investments in MFs are subject to market fluctuations. Thus, your overall return would vary depending on the performance of the MF scheme for which you have a SIP.
Conclusion
If you are risk averse, and want high risk-free return, the Post Office Monthly Income Scheme (PO MIS) and Post Office Recurring Deposit (PO RD) combination is one of the best options available to you.
Other articles you might be interested in:
- A comparison between bank FD and FMP: FD versus FMP
- Advantages and disadvantages of home loan in joint names
- Post Office Time Deposit Account (Fixed / Term Deposit)
- Fixed Deposit (FD) – A favourite for generations
- Post Offices – Another source for Gold Coins
- An introduction to Post Office (PO) Recurring Deposit (RD) Account
- “RaagVamdatt.com – Financial Planning Demystified” Completes One Year
- An introduction to Recurring Deposit
- Banks in India hike interest rate on FCNR, NRE deposits
- Post Office Schemes: Downloadable Forms
- Understanding a Fixed Maturity Plan (FMP)
- Banks in India start cutting lending and deposit rates
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Dear Mam/Sir,
Kindly clarify the details about the recurring deposit interest rate for the year 2009-10
Regards,
Lalitha
Dear Sir,
I hope PostalMIS(with rd) is for 6yrs.
If i deposit 50thousand rupees in MISwith rd then at the end of 6yrs how much amount will be back?
please clarify on this.
Hari
Hi Hari,
The post office MIS is for 6 years, whereas the recurring deposit is for 5 years. The advantage of the the combination is that in effect, you get a compound rate of interest instaed of simple interest.
Hi Lalitha,
The rate of interest offered on post office RD account is 7.5% per annum.
my mother having RDA in post office now she is expired. nominee is mine and my son. my son is minor. can i withdraw the amount
Hi M,
Yes, you can. You would need the death certificate for your mother.
Can I get personal loan on my Post office monthly income scheme? If yes, how much and what is the interest rate?
Hi Rajesh,
You can not get a loan against Post Office MIS.
Post office MIS account is for the period of 6 years whereas the RD account is meant for 5 years. Then what about the interest credited to the RD account after the completion of 5 years ? Whether this amount earn interet or lying idle?
Hi Shashidhar,
The RD account would close after 5 years. So, you would receive the monthly interest from the MIS for the last 1 year.
Hi to all at RV,
I have about 30k invested in the KVP,s …how best can i utilise these in terms of maybe picking a loan against these to reinvest or ask the PO to invest in another scheme on these as a loan …will any bank give me a loan against the KVP..
Regards
Sushant
Hi Sushant,
Yes, banks do give out loans against KVPs. But I would not recommend taking a loan against them and reinvesting the money. I would suggest that you keep it simple – reinvest after the KVP matures.
Hi Ashwin,
You can close it after 3 years of opening it.
dear sir,
i ashwin have opened a rd accoont in post office.till now i have deposited Rs 500 and now i want to close it.can i cloose middle of5 years.
I think we can invest 9 lacs in joint MIS. Considering maximum amount and RD for monthly interest, how much is effective interest rate?
Sir, there is no in govt notification rate of interst of 5 year RD of Indian
post say.so i want clearification that in RD interst calculate without rate of interst or not.
hi new opening a/c
very interesting info. continue to be informatic. thank you.
can i get loan agest my mis