Post Office Monthly Income Scheme ( MIS ) is very popular among the 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 )
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.
Showing posts with label MIS. Show all posts
Showing posts with label MIS. Show all posts
Thursday, January 15, 2009
Thursday, December 11, 2008
Automatic transfer from Post office MIS to SB account
Since many people have asked me about this in different forums, I am creating a post on how to transfer the monthly interest earned in PO Monthly Income Scheme (MIS) to an Savings Bank(SB) account.
Please note that to avail this facility you will have to open the MIS and the SB account in the same HPO(Head Post Office). As per my knowledge, this facility of auto credit is only available in Head Post Office and not in all the Post Offices. Every Pin code area has its own HPO.
When opening an MIS ( or even later if you already have an MIS account open ), give a letter to the person handling the MIS counter, stating that you want the monthly interest to be transferred to your SB account. Mention both your MIS and the SB account number in the letter.
Once this facility is activated, the interest from MIS scheme will automatically get transferred to your SB account on the date interest becomes due.
Now, no worries about going to the post office to collect the interest every month. The interest will keep getting accumulated in your SB account.
The Post Office SB account comes with facilities like Cheque book, so you can simply withdraw money from there by depositing a cheque in any of your other Savings account ( in any bank ).
A simple tip, if you don't need the money immediately you can arrange for a scheme wherein the monthly interest gets transferred to a RD ( recurring deposit ) account via the SB account i.e.
MIS ---> SB a/c ---> RD
Post Office offers a 5-year PORD. If you want to transfer to an RD, you will have to give two letters:
1. One letter to transfer monthly interest from MIS to SB account.
2. Second letter to transfer the monthly installment from the SB account to the RD.
Make note of the below points:
- Interest gets transferred from MIS to SB on the date it becomes due.
- But, the installment of RD is transferred into it on the 15th of every month.
PS: A small tip, one month after you have setup this scheme ( after the interest becomes due), do visit the post office to get your pass books updated to check whether this has come into effect or not. Sometimes, even after giving letters to post office authorities, they forget to activate this facility for your accounts.
Please note that to avail this facility you will have to open the MIS and the SB account in the same HPO(Head Post Office). As per my knowledge, this facility of auto credit is only available in Head Post Office and not in all the Post Offices. Every Pin code area has its own HPO.
When opening an MIS ( or even later if you already have an MIS account open ), give a letter to the person handling the MIS counter, stating that you want the monthly interest to be transferred to your SB account. Mention both your MIS and the SB account number in the letter.
Once this facility is activated, the interest from MIS scheme will automatically get transferred to your SB account on the date interest becomes due.
Now, no worries about going to the post office to collect the interest every month. The interest will keep getting accumulated in your SB account.
The Post Office SB account comes with facilities like Cheque book, so you can simply withdraw money from there by depositing a cheque in any of your other Savings account ( in any bank ).
A simple tip, if you don't need the money immediately you can arrange for a scheme wherein the monthly interest gets transferred to a RD ( recurring deposit ) account via the SB account i.e.
MIS ---> SB a/c ---> RD
Post Office offers a 5-year PORD. If you want to transfer to an RD, you will have to give two letters:
1. One letter to transfer monthly interest from MIS to SB account.
2. Second letter to transfer the monthly installment from the SB account to the RD.
Make note of the below points:
- Interest gets transferred from MIS to SB on the date it becomes due.
- But, the installment of RD is transferred into it on the 15th of every month.
PS: A small tip, one month after you have setup this scheme ( after the interest becomes due), do visit the post office to get your pass books updated to check whether this has come into effect or not. Sometimes, even after giving letters to post office authorities, they forget to activate this facility for your accounts.
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