Monthly Income Plans for Senior Citizens

Senior citizens prefer high-return investment choices which offer better security for themselves as well as their families. Senior citizens need a choice of investment that helps them to enjoy the comforts of a retirement life. Many post-retirement investing opportunities, even though they deliver high flexibility, are not lucrative enough. To gain enough and still protect their capital, a senior citizen must maintain a combination between low to medium risk and safe investment choices.

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Types of Monthly Income Plans (MIPs)

1. Dividend

Sum is paid from the “distributable surplus”, that is, in the form of regular payouts. The investor can choose to receive the pay-out quarterly, monthly, annually, or half-yearly. However, dividends are payable only if the fund gains profit. 

2. Growth

No steady inflow of dividends and profits are added to the net asset value (NAV) and let the corpus grow thus leading to wealth creation 

Features of Monthly Income Plans (MIPs)

MIPs fall into the heading of a “hybrid mutual fund”, and they are debt-oriented. They are designed for senior citizens/pensioners/conventional investors who are risk-averse. Some of the features of MIPs are as given below:

1. Monthly Payment

MIPs provide a regular monthly payout option. This payout is fixed and the insured person does not have to worry about receiving the amount expected each month.

2. Lump Sum Benefit on Maturity

Most MIPs offer a lumpsum benefit at the end of the policy tenure. This lump sum benefit is usually optional and, as part of the monthly benefit, people may apply for the lump sum amount to be paid. This amount allows them to cover bigger costs, such as home renovation, purchasing a house (if necessary), travel expenses, and any other expenses that occur shortly after retirement.

3. Insurance Cover

The best MIPs come with life insurance coverage. In the case of an unfortunate event, this insurance allows the insured to secure their loved ones' future. The insurance cover gives the sum guaranteed plus any bonus that was declared by the insurer before the sum is due.

4. Premium

MIP premium includes the half-yearly, quarterly, annually, monthly, or lump sum amounts to be paid to the insurance provider to keep the policy active.   The insured may be given the option to decide between either of the payment periods 

5. Bonus

When the last monthly payment is made in MIPs, the bonus sum offered is paid along with the last payment made.  For a certain number of years, some policies will offer the bonus sum which accrues, as such, the insured get a larger amount which they can use to cover significant expenses. Bonus is of three types: reversionary, temporary, and terminal bonuses.

6. Optional Payout Choices

Some of the best MIPs offer the insured and his/her nominee optional payout choices. Many of these plans include, after a certain period of months or years, a monthly payout option and also lump sum payout options. The best MIPs provide the insured with a variety of payment options that they can use to their benefit.

7. Tax Benefits

Under section 80C and 10(10D) of the IT Act, MIPs provide tax benefits. Section 80C provides a deduction of INR 1.5 lakhs overall provided the insured has used the sum in the manner specified under the section. For any amount earned under a life insurance policy, an exemption under section 10(10D) is valid. This amount covers death benefits, maturity, and accumulated bonus benefits.

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Bottom Line 

MIPs are primarily debt-oriented. More than 70 percent of the contributions go to debt funds. The balance of the investment is invested in stocks. The primary aim behind it is to, wherever possible, gain stable returns. For senior citizens who want an alternative source of income with limited risks, an MIP is perfect. While the FDs and Post Office have similar monthly income schemes (MIS), MIP offers it an advantage over other schemes.