While MIS fares better in relation to interest on bank FDs as well as the pay-outs are rather more frequent in comparison to FD interest where interest is compounded on a quarterly basis, there are some limitation of this post office small saving scheme. Here in the article we will detail, when an investor should and should not consider investment in MIS:
MIS or monthly income scheme involves investment of some lump-sum amount for a tenure and the account owners can then earn interest on it on a monthly basis. As the interest pay out is made on a monthly basis, the yield on an annual basis from the instrument which is currently 7.7% turns out to be 7.98%.
So, with higher rate of interest and sovereign backing can be a good saving option in a case when you wish to meet out some expenses from the interest earnings from MIS. As in a case, when you wish to open the account for your child, who is studying at a different place and through the interest pay-outs on the instrument can meet monthly expenditure.
But here there is a catch as unlike some other investment options, the interest on MIS saving scheme is not entitled to any rebate as per Income Tax Act. So, salaried individuals or others whose income do not fall in the taxable category can invest in the MIS to earn regular income.
There is also another limitation in respect of the minimum and maximum amount that can be invested say Rs. 1500 is the minimum while Rs. 4.5 lakh is the maximum in case an individual opens the account and in case the account is opened jointly then Rs. 9 lakh is the limit.
And hence when in need of regular income stream then you can open MIS and also a post office savings account for the dependent such that money can be easily transferred via auto credit through ECS or PDS facility.
Also, senior citizens should not consider investment in MIS as the other scheme SCSS or senior citizen saving scheme currently offers a higher rate of return of 8.7%.
It is to be noted that MIS account also allows pre-mature encashment after one year but prior to completion of 3 years with a penalty of 2 per cent of the deposit and after 3 years with a penalty of 1 per cent of the deposit.