How do I invest Rs 25 lakhs to generate a monthly income? (2024)

With rising inflation making everything from groceries to children's education more expensive, relying on a single income source is a big mistake. Most people who are salaried look for a part-time business or, if they own a spare property, put it to use to earn money from rent. Another way to generate consistent income is to utilise funds that are sitting idle in your bank account. You may be unaware that there are various investment options in India that can help you earn a monthly income. Keep reading to learn about such schemes.

How to make a monthly income from the investment?

Many people simply keep their money in a savings account. But, in that case, the return will be in the range of 4% to 6%. The following options will help you earn more.

1. Fixed Deposits

   Banks offer fixed deposits, which are regarded as the safest way to park your money. You put a lump sum amount into the scheme for a set period, and the financial institution pays you interest on it. You can withdraw your principal investment plus interest income at the end of the tenure.
   

   Features of fixed deposit

   • Your investment tenure can range from one week to ten years.
   • You can get assured earnings because the returns are not market-linked.
   • If you have a poor credit profile and need money immediately, you can use your FD as collateral for a personal loan.

2. Corporate Deposits

   Corporate FDs operate in the same way that bank FDs do. They are offered by housing finance companies (HFCs) and non-banking financial companies (NBFCs). Corporate FDs provide higher returns than bank FDs, but the risk is significantly higher. Consider the ratings assigned by CRISIL and ICRA when investing in this scheme. If a company is rated AAA by a rating agency, it means that it is stable and unlikely to default in the future.
   

   Features of corporate deposits

   • You can select from several interest payment options. For example, you can choose an annual interest payment, a monthly payment, and so on.
   • A corporate deposit document can serve as collateral to obtain a loan.
   • You have the option of withdrawing prematurely. However, a small penalty is imposed if you do so.

3. Mutual Funds Scheme

   A mutual fund is essentially a pool of money in which various investors with similar goals deposit their funds, which are then invested in bonds, equities, securities, or money market instruments. The professional fund manager manages the scheme portfolio.
   
   When the scheme generates a profit, it is distributed proportionally among investors after deducting necessary expenses. You will find various mutual fund schemes in the market that provide regular payout options.
   
   Remember that mutual fund returns are market linked. At any time, if the market is unfavourable and stocks in your portfolio are not performing well, your return will be impacted.
   

   Features of mutual funds

   • You have the option to invest through a lump sum or a small monthly amount via SIP.
   • If you have a higher risk tolerance, you can invest in an equity-oriented scheme to maximise your returns. However, if you want to play it safe, you could opt for a debt-based scheme.
   • Mutual funds invest your money in the stock of different companies, minimising the risk of capital loss.

4. Government Bonds

   Government bonds are issued by the central or state government. It is essentially a debt instrument used to fund projects, such as road construction and infrastructure development. In this type of investment, you and the bond issuer enter into a contract in which the issuer guarantees to pay interest on the face value of the bond. The most common example of government bonds are fixed rate bonds, floating rate bonds, and inflation-indexed bonds.
   

   Features of government bonds

   • Government bonds provide liquidity benefits. You can always sell it on the secondary market.
   • If the primary obligor fails to make a payment, it is the government's responsibility to pay the principal amount plus interest accrued.
   • Bonds have a longer maturity period, which can be up to ten years or more.

5. Post Office Monthly Income Scheme (POMIS)

   As the name implies, POMIS is offered by the India Post office and is ideal for those looking to earn a consistent income without taking any risks. The interest rate offered in this government-backed investment option is 6.6% per year. If you are investing solely, the maximum you can contribute to this scheme is Rs 4.5 lakhs. In the case of joint investment, the amount gets doubled to Rs 9 lakhs.
   

   Features of POMIS

   • The minimum investment in this scheme is Rs 1,500.
   • The scheme's investment tenure is five years. After the tenure is up, you can reinvest it for another five years.
   • This scheme pays interest monthly.

6. Senior Citizen Savings Scheme (SCSS)

   If you are above 60 years of age and want to make a regular income, this sovereign-backed investment is the best alternative. You can invest in this scheme either through the post office or a notified bank branch. This scheme offers 7.4% interest, which is paid out quarterly. Although the SCSS interest rate is subject to monthly revision, the new rate applies to new investors, and you will receive the same rate of return as when you invested.
   

   Features of SCSS

   • You can invest in this scheme with as little as Rs 1,000 and a maximum of Rs 15 lakhs.
   • SCSS typically matures in five years, but you have the option of extending it to three more years.
   • The plan allows for early withdrawal. In case you withdraw before two years, you must pay a 1.5% penalty. And after two years but before five years, you must pay a 1% penalty.

Also Read: Brilliant Tips on Financial Planning for Women

Factors to consider when investing for monthly income

Since Rs 25 lakhs is not a small sum, putting it at risk by impulsive investing makes no sense. Here are some important considerations to make when picking an investment plan.

• Safety

  When selecting a plan, consider whether it provides guaranteed returns or if the returns are market-linked. Mutual funds and stock SIPs are investment schemes that fluctuate with market movement. Such plans are preferable if you are investing for the long term with high return potential. However, if your investment horizon is shorter, say two to five years, and you want to earn income with minimal risk, you might consider FDs or government bonds.
  

• Flexibility

  Before looking for how to earn monthly income from the stock market or other sources, consider flexibility. Your investment should be tailored so that, in addition to providing a consistent flow of income, you have the option of withdrawing early. Check the additional charges you might have to pay for premature withdrawal.
  

• Tax liability

  Distinct types of investments are taxed differently. Some schemes allow you to deduct your contribution amount from your total taxable income. However, in some plans, returns are tax-free. For example, earnings from mutual funds are considered capital gains and are taxed based on the holding period and scheme type.
  

Also Read: 9 Basic Reasons Why You Must Save Money

To conclude

Different types of investors have varying financial objectives as per their lifestyle and risk appetite. If you want to maximise your earnings while accepting some risk, market-linked investment is the way to go. It will make meeting your worthy financial goals appear simple. However, if you are still falling short of meeting your aspirations, you can fill the gap by availing a personal or mortgage loan.

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