Post office monthly income scheme v/s annuities: Comparing returns
What's the story
The Post Office Monthly Income Scheme (POMIS) and annuities are two popular investment options for those looking for regular income. While both provide a steady stream of returns, they differ in terms of risk, return rates, and liquidity. Understanding these differences can help you make an informed decision based on your financial goals and risk appetite. Here's a look at how they compare in terms of returns.
Pomis Insights
Understanding PoMIS returns
POMIS offers a fixed interest rate, which is currently around 6%. This scheme allows investors to deposit up to ₹4.5 lakh in a single account or ₹9 lakh in joint accounts. The interest is paid monthly, making it ideal for those looking for regular income without taking risks. However, the returns are fixed and not subject to market fluctuations.
Annuity insights
Annuities explained
Annuities are insurance products that provide regular payments over time in exchange for an upfront investment. The returns on annuities depend on the type chosen—immediate or deferred—and can range from 5% to 7% or more per annum. Annuities also offer options like fixed or variable payments, giving investors some control over their income stream but adding complexity.
Risk assessment
Risk factors involved
POMIS is a low-risk investment as it is backed by the government, guaranteeing capital preservation. Annuities, on the other hand, come with some risks depending on the issuer's financial stability and market conditions. While they provide higher potential returns than POMIS, they also expose investors to interest rate and inflation risks.
Liquidity analysis
Liquidity considerations
One major drawback of POMIS is its lack of liquidity; funds are locked in for five years with penalties for premature withdrawal. Annuities also have limited liquidity as they usually require holding until maturity or surrendering early at a cost. Investors should consider their cash flow needs before choosing either option.