Recurring deposit helps cover the specific costs
A recurring deposit (RD) allows you to put aside small sums at regular intervals. Many rarely have a lump sum in their accounts to rescue them from a financial crisis. Saving regularly enables you to plan ahead for expenses and avoid falling into high-interest debts to meet the requirements.
What you should know about RD
A recurring deposit with a bank or post office is one of the safer investment avenues. Although yields hover around nine percent, not spectacular and equity. On the positive side, there is negligible probability of losing all your hard earned money unlike in the case of volatile capital markets. It is a good option for people with risk aversion.
For those who run their own small or medium setting aside a regular amount into the savings are not always feasible. Lack of payment could cost as a penalty. If finances tight do not let you set aside a fixed amount regularly, opting for more flexible scanning bank account. In this case, the bank automatically transfers money from a specific account to a fixed deposit, when the balance goes to a specified value. The more risk-taking individuals can opt for a systematic investment plan (SIP) of an investment fund that offers better returns.
Premature withdrawal
This means losing a part of your interest. To meet their financial needs halfway, before the end of the term, consider taking a loan or overdraft in the amount of balance in the DR.
A recurring deposit is a low-risk to achieve their goals in the short to medium term. Equity is a better option to explore when you have a long-term.
You can use an RD to your advantage if you plan ahead.
Tax Implications
A recurring deposit does not attract withholding tax. Fiscal responsibility is dependent on the total income bracket in which an investor. Therefore, those in the group of 30 % tax can not be very happy with the after-tax return here. Returns slip even further if one takes into account “real returns’ after allowing for inflation.
For those with a low risk appetite and want to realize their goals in the short to medium term, there is no better alternative to a recurring deposit.
CASE STUDY
Sita wants to set aside R 1.5 lakhs as its contribution to the marriage of his sister. She has to save a set amount each month to raise that amount of money within two years. Being a person with an appetite for risk is very low, Sita wants to open a bank an RD for their goal.
At an interest rate of nine percent, compounding on a quarterly basis, Sita has to save 5690 rupees a month in the DR to make its goal in two years.
Source: [ET]
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