POMIS Draws Highest Deposits Among Small Savings Plans: Here’s Why

Compared to other small savings schemes, the Post Office Monthly Income Scheme (POMIS) has the highest deposits of Rs 2,42,313 crore as of March 2023, according to the Reserve Bank of India’s (RBI) recently released “Handbook of Statistics on the Indian Economy”. POMIS’s total value of deposits is higher than other small savings schemes, even though it offers 7.4 per cent interest annually, which is lower than the rates provided in Sukanya Samriddhi Yojana (SSY) or Senior Citizens Savings Scheme (SCSS), where subscribers can earn 8.2 per cent. The POMIS interest rate has been the same since April 1, 2023. However, unlike other small savings schemes, including POMIS, SCSS and SSY cater to specific investors based on age and gender.

Other Schemes Offering Higher Rates Than POMIS

The five-year National Saving Certificate (NSC) VIII offers 7.7 per cent annually, while the five-year post office time deposit provides 7.5 per cent interest. Both these schemes come with Income-tax benefits under section 80C. Kisan Vikas Patra (KVP) also offers a tad higher return than POMIS at 7.5 per cent, but there is no tax benefit in KVP.

Let us look at the POMIS scheme features that make it so attractive among investors.

Minimum Age: Those aged 18 and above can open the account in their name. A minor can also open an account under the supervision of a guardian.

Investment Amount: The minimum investment is Rs 1,000, and the maximum is Rs 9 lakh for a single account and Rs 15 lakh for a joint account. A maximum of three people can open a joint account. The corpus is divided equally among the account holders.

Maturity Period: POMIS has a five-year maturity period.

Tax Benefits: The scheme offers tax benefits for contributions to the account under Section 80C of the Income-tax Act, 1961.

Interest Rate: A POMIS account offers 7.4 per cent interest per annum. Between 1993 and now, the rates ranged from 5.0 per cent to 8.4 per cent. The interest is paid monthly and is taxable to the investors.

Reason For POMIS’s Highest Outstanding Deposits

The people who prefer investing in POMIS want a stable monthly income from their one-time investments. They can also earn guaranteed income. For senior citizens and those looking for safe and passive income, POMIS offers a great opportunity. The interest rate is also competitive, usually more than what banks offer.

Says Preeti Zende, a Securities and Exchange Board of India (Sebi)-registered investment advisor (RIA): “POMIS is a government-backed small savings scheme that allows the investor(s) to set aside (save) a specific amount every month. Subsequently, interest is added to this investment at the applicable rate and paid monthly to the depositor(s). As POMIS has a central government guarantee, the interest rate at which you invest gets blocked for five years, and you already know how much you will get monthly. Investors find this product easy to understand and consider it one of the safest instruments. Some more reasons are its short lock-in, the scheme offers liquidity to the investor, allowing premature withdrawals after one year, you can open this with multiple holders, and offers regular cash flow.”

Alternates Of POMIS And What Should You Consider:

Zende says, “POMIS scheme is mainly suitable for those who need regular cash flow such as retirees and senior citizens. For them, alternative options could be SCSS and senior citizen bank fixed deposits, which offer more interest and guaranteed monthly income. As general public POMIS interest is taxable as per your tax slab, it is good for those whose tax slab is low. For high tax rates, we can think of doing a systematic withdrawal plan (SWP) from debt mutual funds (MFs) where volatility is low.”

Moreover, “For senior citizens, capital protection is important. So, they can have government-assured fixed instruments with high interest rates. They also should not invest all their money in such schemes because they will have reinvestment and inflation risk, and their corpus will be depleted over time. So they can be exposed to debt funds, hybrid funds, and equity MFs. For investors, still earning should look into the products that offer them capital growth with better taxation, such as equity MFs and equity stock investments”, suggests Zende.

While the guaranteed income instruments offer stability, they wouldn’t generate income in line with inflation in the long term. So, investors, whether senior or young, may consider investing some of their money in equity schemes to keep up with inflation besides guaranteed income schemes.