Each of us in some way or the other wants to be a saver. It doesn’t matter if we are saving a huge amount of money; however it does feel good to have some money allocated for the future needs. It gives you a sense of relief that you are not consuming it all. However, saving becomes a bit difficult if our earning isn’t that great. Small savers even don’t have an appetite to take risks by investing in mutual funds or shares. Nor can you invest your amount in fixed deposits as accumulating large sum of money might be a hard for you. For all the small savers, who wants to save small amount of money on a regular basis and earn some interest from it, Recurring Deposit is the best suitable for you.
All that you need to do is to invest a fixed amount of money for a certain period of time and based on the amount invested and the period, you earn interest. You can start with a sum as small as 10 INR in case of post office as low as 100 INR in case you opt for a bank. This will also help you to accumulate a larger fund for yourself which you wouldn’t have otherwise able to do.
So for making a recurring deposit, you need to:
1. Choose whether you want to go for a bank or a post office
2. Ascertain how much amount you want to invest each month
3. The time period until which you want to invest
4. Ascertain the date in the month when you are going to make a deposit
In case you choose to make a recurring deposit in a bank:
The time period will vary between 6 months to 12 months. You need to assign a fixed amount that would go for the deposit and it cannot be varied at any later time till the maturity period is over. However, you can assign a date of your choice when the amount will be deposited into your recurring deposit account. The rate of interest will vary as per the time period and even year wise.
For example, if you are investing a sum of 2000 INR every month for a period of 6 months, the interest rate can be 8.25% and you would be able to accumulate a sum of 12290.07 at the end of 6 months. Likewise, if you are investing a sum of 2000 INR every month for a period of 60 months, the interest rate can be 8.75% and you would be able to accumulate a sum of INR 1,50,698.31 at the end of 60 months. You can very well see how saving small amount for a certain period gives you better returns which are pre-assured.
The interest earned is taxable for a recurring deposit account. If you have an online banking facility with the associated bank, you can make your deposit from anywhere by availing the net banking facility. You need not physically go to the bank and fulfill the formalities. You can also opt for auto deduction facility of the amount on a fixed date from your savings account, to avoid a miss-out on any deposit.
In case of a deposit made in a post office:
The recurring deposit has to be made for a minimum period of 5 years. After 5 years, the account can be continued for another 5 years at the same rate of interest. At present (2014), the interest rate offered for the recurring deposit is 8.4 %. The only good thing is that advance deposits earn rebate and the minimum deposit starts with just 10 INR. The interest is compounded on a quarterly basis and is taxable. However, the interest rate remains fixed for the longer period and does not fluctuate. Post office usually offers a lesser rate of interest than most of the private banks. Post offices are best suitable for places where the accessibility of the bank is not there.
My suggestion would be to go for a bank for the recurring deposit as it offers more options and flexibility to deposit your amount. Even interest rates offered by banks are more lucrative. However, if you plan to make a recurring deposit for a longer period, say 5 or 10 years, choose post office deposits as their interest rate does not fluctuate over time. For banks, it might change.
Note: Fixed deposits fetch you more interest for the same amount and the same time frame as compared to a recurring deposit as you are depositing your money all at once. So, if you have good accumulated cash, go for Fixed Deposits.
My Investment Strategy
I would like to share my investment strategies for the past two years with respect to the recurring deposit account. I started off with the recurring deposit of an amount of 2000 INR for a period of 1 year as I could not afford more savings than that. Over a period of 1 year I was able to accumulate an amount of some 25,250 INR.
This amount I reinvested in a fixed deposit for another year which earned me a better interest than recurring deposit. Now, I have still continued with the recurring deposit account. I am investing a small amount every month into it to accumulate more corpus cash along with the fixed deposit. I am sure over a period of time, I will have a substantial amount of assured cash in my account which I can keep on reinvesting and building a good corpus money.
Note: Remember to submit the tax waiver forms 15 G or 15 H. It is to avoid tax deducted at source for your investment if your income is below the exemption limit.
The exemption limit is Rs 2 lakh for individuals below 60 years and HUFs. It is Rs 2.5 lakh for senior citizens, and Rs 5 lakh for very senior citizens above 80 years.
For individuals below 60 years, HUFs and trusts, etc. – use Form 15G.
For senior citizens and those above 80 years – use Form 15H.
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