There are many, some quite popular, instruments that pay out interest income at regular intervals instead of ploughing it back for a full dose of compounding.
The floating rate savings bonds (FRSBs) issued by the RBI come under this bracket; so do government securities (G-secs) and the post office’s Senior Citizens Savings Scheme (SCSS). Such instruments have their uses. If an investor needs regular interest income to meet expenses, then the payout structure of these products is just fine. But if your objective is to grow wealth, it’s hardly optimal.
By default, the interest is paid out on these investments—half-yearly in FRSBs and G-secs, and quarterly in SCSS
these are among the best fixed income instruments in the market—with very low risk thanks to government backing and a relatively high interest rate (currently 7.15% for FRSBs, 7.4% for the SCSS, and ~7.1% for the 10-year G-sec) compared to many bank deposits.
there are mutual funds, of course, which come with both the dividend and growth options.
Go for the growth option if you seek to build a corpus, because the dividends and interest will be automatically reinvested in the mutual fund scheme. If you choose the dividend option, like with non-cumulative deposits, you will have to decide what to do with the money you get: spend it or plough it back.
