A look at how minors above 10 can earn interest on their investment

The Post Office Monthly Income Scheme (POMIS) is a savings scheme. You can invest a fixed amount in this scheme for a maximum of five years and earn a specific interest each month. The monthly income scheme has an interest rate of 6.6% per annum, payable every month. The government has kept interest rates on small savings unchanged for the quarter ending September 30.

Any Indian resident above 10 years of age can open a POMIS account. Also, the account can be opened jointly by up to three adults.

You can open this account with a minimum sum of Rs 1,000, and a maximum of Rs 4.5 lakh, if it is a single-holder account. For joint accounts, the limit is Rs 9 lakh with all holders having an equal share in the investment.

You start earning interest after the completion of a month from the date of opening the account, and it continues until maturity.

How much interest can one earn?

Say you invested the maximum permissible amount of Rs 4.5 lakh for five years. With an interest rate of 6.6 percent, you can earn Rs 2,475 per month. Post maturity, you can either withdraw the entire deposit from a post office or transfer it to your savings account via Electronic Clearance Service. If you want, you can also renew the account.

Similarly, the monthly interest can be auto-credited to your savings account. You can either give standing instructions at the post office or get it through the Electronic Clearing System. The interest, however, is taxable, as the amount is not covered under Section 80C of the Income Tax Act.

If you fail to claim the interest, it would not fetch you any additional interest. Moreover, any deposit in excess of the fixed limits would be refunded.

How can you close the account?

On maturity after five years, you can close the account by submitting a prescribed application form with your passbook at the concerned post office where you opened the account.

In case of death of the account holder before maturity, it can be closed, and the deposit will be refunded to the nominee or the legal heirs, while the interest is paid up till the preceding month.

Also, the deposit can’t be withdrawn before one year from the date of opening the account. If it is closed prematurely after one year and before three years, 2% of the principal amount is deducted.

Benefits

Capital protection: Your money is safe as this is a government-backed scheme.

Low-risk investment: As this is a fixed- income scheme, the investment is not subject to market risks.

Affordable deposit amount: One can start with a nominal initial investment of Rs 1,000. You can later add more sum to it in multiples of this amount.

Guaranteed returns: A guaranteed interest is paid every month, which is more than other fixed-income investments such as FD.

Fund movement: You, in turn, can move the interest to a recurring deposit account, a feature the post office has added recently, or a Systematic Investment Plan.

Ease of transaction: The monthly interest can either be collected directly from the post office or transferred to one’s savings account.

Reinvestment: The corpus can be reinvested after maturity in the same scheme.