Post office MIS v/s corporate debt funds: Which is better?
What's the story
The Post Office Monthly Income Scheme (MIS) and corporate debt funds are two popular investment options in India. Both offer regular income, but differ in risk, return, and liquidity. While the MIS is a government-backed scheme with fixed returns, corporate debt funds invest in corporate bonds with varying returns based on market conditions. Here's a look at their differences to help you decide.
#1
Understanding the post office MIS
The Post Office Monthly Income Scheme is a savings plan that guarantees monthly payouts at a fixed interest rate. The scheme requires a minimum investment of ₹1,500 and allows a maximum of ₹4.5 lakh per individual account. The current interest rate is 6.6% per annum, paid monthly. The capital is safe as it is backed by the government, making it ideal for risk-averse investors seeking stable income.
#2
Exploring corporate debt funds
Corporate debt funds invest in bonds issued by companies to raise capital. These funds are managed by asset management companies and offer returns based on the performance of the underlying securities. Unlike MIS, corporate debt funds do not guarantee fixed returns. However, they have the potential for higher returns than traditional savings schemes, depending on market conditions.
#3
Comparing risk levels
The risk factor is significantly different between these two investment options. The Post Office MIS has zero risk since it is backed by the government, making it a safe bet for conservative investors. On the other hand, corporate debt funds come with credit risk as they depend on the issuing company's ability to pay back its debts. While these funds can give higher returns, they also come with higher volatility.
#4
Evaluating liquidity options
Liquidity is another important factor to consider when choosing between these investments. The Post Office MIS has a lock-in period of five years, meaning investors cannot withdraw their principal before maturity without penalty, except under certain circumstances like medical emergencies or natural calamities. Corporate debt funds offer better liquidity as investors can redeem units at any time, although this may affect returns due to market fluctuations at the time of redemption.