For conservative investors, predictable income and capital safety often take priority over maximising returns. Products such as fixed deposits and Post Office schemes are therefore commonly used.
However, the final outcome depends not only on the product selected, but also on how the income generated by that product is utilised.
A simple example using the Post Office Monthly Income Scheme (MIS) in combination with a Post Office Recurring Deposit (RD) illustrates this clearly.
Step 1: Using MIS as an income generator
Assume an investor allocates ₹1,00,000 to the Post Office MIS Scheme for a fixed tenure of 5 years.
MIS interest rate: 7.4% per annum
Annual interest: ₹1,00,000 × 7.4% = ₹7,400
Monthly interest payout: ₹7,400 ÷ 12 = ₹617 (approx.)
This monthly interest is paid out and does not compound within MIS.
At the end of 5 years, the investor receives the original principal of ₹1,00,000.
Step 2: Reinvesting the monthly income through RD
Instead of spending the monthly ₹617, the investor opens a Post Office RD and deposits the same amount every month.
Monthly RD deposit: ₹617
RD interest rate: 6.7% per annum
RD tenure: 60 months
The RD allows these small monthly deposits to compound over time.
At the end of 5 years, the RD matures at approximately ₹44,000.
Of this accrued amount, around ₹37,000 is the total earnings made through Post office MIS interest and the remainder interest is earned through the RD account.
Final outcome after 5 years
Component Amount (₹)
MIS principal returned 1,00,000
RD maturity value 44,000
Total value after 5 years 1,44,000
Effectively, the original ₹1 lakh grows to ₹1.44 lakh over 5 years.
Now, let’s understand what is the effective annualised return?
When evaluated as a single investment:
Initial investment: ₹1,00,000
Final value after 5 years: ₹1,44,000
This corresponds to an annualised return (CAGR) of approximately 7.5%, higher than a typical 5-year cumulative fixed deposit offering around 7%.
Why does returns improve despite modest interest rates?
The improvement does not come from higher interest rates.
Instead, it comes from:
Treating MIS strictly as an income product
Giving that income a systematic reinvestment path
Allowing compounding to work through RD
In effect, the investor converts a periodic income into a long-term growth engine without increasing risk.
Final Takeaway :-
Conservative investing becomes more efficient when income is intentionally reinvested rather than passively received.
This principle applies not only to Post Office schemes, but to any strategy where the regular cash flows are involved. Structuring income with discipline can quietly improve long-term outcomes—even in low-risk portfolios.
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