Wednesday, 25 January 2012

All you wanted to know about Reccuring Deposits

To spell an Apple, you start off by learning alphabets. Learning to ride a bicycle, you start off practicing on a bicycle that has additional support for rear wheel.  In addition to this, initially you would be under the supervision of elderly person. Once you learn how to balance, the supports are taken away.
What is common thing in learning to ride     bicycle and to spell an Apple.  Well the common thing is you start off with basic building blocks, a technique, some sort of discipline. Building blocks are alphabets and support for the rear wheel in case of riding a bicycle.
It is not different in case of savings or investments. You cannot Master the art of investment or savings on Day 1. You would need some building blocks. You need to have the self discipline to invest. If you are keen to learn the art of saving or investment but you don’t have the much needed discipline.  In this case you should have financial product that enforces discipline. 
So what is that financial product that would teach you discipline, does not need huge one time lump sum and at the end of the day should give you big corpus? Well Recurring Deposit offered by Banks or Post office is tailor made product that would help people who have just started off learning the art of savings or investment.
let us dive deep:
Recurring Deposits is for you if,
  • You are conservative investor with very low risk appetite.
  • You need a nomination facility.
  • You need big amount of money at the end of some years.
  • You don’t have big lump sum to invest but can invest fixed amount of money every month.
  • You also want attractive interest rate offer for Fixed Deposits. (RD and FD interest rates are same for same tenure)
  • Minimum tenure should be as less as 6 month.
  • Maximum up to 10 years.
Is there any Difference between FD and RD? :
  • In FD, you need to invest money in lump sum. In RD you invest fixed amount every month
  • In FD, TDS is deducted by bank. In case of RD no TDS is deducted.
  • In case of FD some banks offer little higher interest rates for Senior citizen but not in case of RD

Tip: Check out which bank is giving highest rate of interest when you are going for Recurring deposit. As of today Jan 2012, Lakshmi Vilas Bank is offering 10.5% for deposits more than 1 year and less than 2 years. Returns of RD are taxable.
Recurring deposit of 50k for 23 months, amount on maturity would be more than 12.75 lakhs(pre tax).

Take Away:
RD is best option for people who have just started off their journey for wealth creation

Is RD a good way to learn the art of savings? Leave your opinion.


Neel_Daya said...

Read almost all your articles today. And I can say that this is the best collection of sensible articles I have ever come across. Thanks a ton for educating.
Carry on with your good work.


WealthUCreate said...

Thanks Daya. Happy to know that you liked articles. Feel free to share articles/links to your friends.

This blog is still in budding stage.The journey has just began. Encouraging words from readers will always be motivating factor for me.


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