Monthly Income Scheme (MIS) VS Systematic Withdrawal Plan (SWP)

Whenever it comes to generating monthly income, many people prefer the Post Office Monthly Income Schemes (MIS), and the reason for this is low risk. According to SEBI's 2025 survey, 80% of Indian households have a low-risk tolerance and keeping their money safe is most important for them. That is the reason why awareness of Post Office schemes is also quite high. 75% of households are already aware of them. While on the other hand, only 53% of people know about mutual funds. But are schemes considered safe really the best option for regular income? And the biggest thing, do you know that just your tax slab can decide which strategy between MIS and mutual funds will give you more benefit? To find this out, today we will compare the Post Office Monthly Income Scheme and Mutual Fund SWP. So that your investment decision is absolutely correct.

Monthly Income Scheme (MIS)

Let's first talk about the Post Office Monthly Income Scheme (MIS). It is a government scheme where you deposit your lump sum amount for 5 years through the post office and in return, you get a fixed interest every month. Anyone above 18 years of age can invest and there is no upper age limit here. If we talk about risk, then Post Office MIS is a government-backed scheme, so it is almost risk-free. The government itself gives you a guarantee of both investment and interest.

Now let's see how much amount you can invest and how much return we get. The minimum required investment here is Rs. 1,000. The upper limit which is fixed is Rs. 9 lakhs in a single account and if you invest in a joint account then it is Rs. 15 lakhs. Yes, definitely if you are investing with your spouse, investing in separate accounts, then by investing Rs. 9 lakhs and Rs. 9 lakhs separately, you can invest up to Rs. 18 lakhs. One important thing to keep in mind here. Every 5 years you have to renew your MIS account. And at the time of renewal, you will get the interest rate of that time, not today's 7.4%.

If we talk about liquidity. How easily can we withdraw our money? Then in the first year, it is not allowed at all. If you withdraw your principal amount by chance from the first to third year, then a 2% penalty is charged on the principal amount. If you withdraw money between 3 to 5 years, then a 1% penalty is charged on the principal amount. And if we talk about taxation, then in Post Office MIS, the entire interest is added to your income under Income from Other Sources. This means tax is charged on your interest according to whatever is your highest tax slab. So overall, Post Office MIS gives you a guaranteed risk-free monthly income. But with it comes a 5-year lock-in and a higher tax burden.

Also Read, EPF + Mutual Fund: Best Retirement Planning Strategy

Systematic Withdrawal Plan (SWP)

Now on the other side, Let's talk once about Systematic Withdrawal Plan (SWP), which is in mutual funds. It is a way in which you generate a fixed monthly income from mutual funds. The only difference is that this amount is not pre-fixed like Post Office MIS. Rather, the investor himself decides how much to withdraw every month. Mutual funds are broadly of three categories. We all know that. One is our equity mutual funds. Second is our debt mutual funds and third is the combination of both, hybrid mutual funds. But to compare with the Post Office MIS scheme, we will take the example of only debt mutual funds. Because like-to-like comparison can be done properly. That is, such funds which invest in bonds of a company or government.

Now there is no age restriction to invest in debt funds. If we talk about risk, then risk in debt funds occurs when the company or government defaults on its bonds. We call this credit risk. But if the funds are sovereign bonds, if our money is being invested in bonds of government companies and top blue-chip companies, then the risk becomes very low. And on the other hand, if we also look at MIS, then the money that the government takes from you is indirectly further invested in government bonds. So here we can also invest in government bonds through mutual funds. That is why selection in debt funds matters a lot, which debt fund you are investing your money in. In debt funds, you can invest as much as you want and withdraw as much monthly as you want. So liquidity is not much of a problem. The point to note here is that this return is not guaranteed, but historically if we see, then debt mutual funds have consistently delivered returns of 7 to 8% over the long term, if you remain invested. Liquidity is the biggest plus point of mutual funds. Here you get complete flexibility. You can pause anytime, increase the amount, decrease it, or if you want to withdraw the entire corpus, you can do that too. There is no type of lock-in. Nor is any penalty charged at the time of withdrawal. Now comes the most interesting part, which is taxation. If you withdraw some amount from a debt mutual fund in the form of SWP, then tax is charged only on the capital gains part and because of this, our overall tax is much lower in debt mutual funds, quite lower if we talk about Post Office MIS, especially if you come in the 20%, 30% slab.

Also Read, Arbitrage Fund Explained. Are Arbitrage Fund Better Than FD?

So overall, SWP provides you benefits like better flexibility, higher liquidity, and lower tax.