Today I will talk about the simplest financial
product known to me – the Recurring Deposit or RD as it is called. Most
investors know about Recurring Deposits and have used them at some point of
time. However, many investors are still confused regarding this straightforward
product.
Also, I will share tips on extracting the maximum
benefit out of Recurring Deposits and on using this product to lead a better
financial life.
Simple
and Beautiful financial Product
Recurring Deposits are often rightfully called one
of the simplest financial products in the world. You open a Recurring Deposit
for a fixed amount and for a fixed tenure. Each month that fixed amount is
invested and you earn interest (at a predefined rate) on the Recurring Deposit.
Planning
your Short Term Goals using Recurring Deposits
A Recurring Deposit is a safe investment, or in
other words, it is a financial product with guaranteed returns. Stocks or
mutual funds are not ideal investments for short tenures. There is no guaranteed return in equity-based
products and consistent returns can only be expected over a long horizon of
8-10 years.
Recurring deposits are therefore the ideal products
to consider when planning short-term goals over a horizon of 1-3 yrs. These may
include
·
A corpus for a down
payment of our new home
·
Education fees for your
children (yearly fees paid in one shot)
·
Home Renovation expenses
·
Higher Education
Expenses if you are in Job
·
Upcoming Marriage
expenses due in 2-3 years (e.g. sister’s/brother’s marriage)
·
Setting aside funds for
a vacation
Some other Features of
Recurring Deposits
·
There is no TDS applicable on recurring
deposits, but the interest income is fully taxable in your hands.
·
You can break your recurring deposits anytime before maturity
with some penal interest. The interest applicable will be the rates applicable
for the tenure RD was running and not the original tenure chosen.
·
Some Banks offer flexi recurring deposits also, where you can
increase the amount of deposit each month (but cant decrease it)
·
The minimum tenure for RD is 6 months and maximum is 10 yrs
·
You can start recurring deposits for minimum of Rs 500 or Rs 1,000.
In post office its minimum Rs 10
·
Recurring deposits comes with Nomination Facility, so your nominee will
be contacted and handed over the money if you die.
·
You can take loans against your recurring deposits for 80-90% of
RD worth
·
Interest is compounded on quarterly basis in recurring deposits
Please share what you
think about Recurring Deposits. Have you used them?
Can you share one insight or hidden information about Recurring Deposits, which
you feel may help others!
