Skip to main content

Investing in Recurring Deposits (RDs) - Check the pros and cons

Buy Gold Mutual Funds

Invest Mutual Funds Online

Download Mutual Fund Application Forms

Call 0 94 8300 8300 (India)

You will not be charged TDS if you invest in these accounts

BANKS have begun to reduce deposit interest rates. Small investors, who do not have large amounts to invest in fixed deposits (FDs), can look at making regular invests in a recurring deposits (RDs).


How does an RD work?


RDs are like systematic investment plans (SIP) in FDs. You will have to choose the amount of investment that you can make every month and the tenure. However, you need to be sure that you will be able to pay the fixed amount every month because any delay in the payment of scheduled instalments will change the maturity amount due to application of penalty charges.

Most banks do not allow partial payment, nor can you pay more than the determined amount. The minimum balance of deposit and tenure varies from bank to bank. While in case of post offices, you can start an RD with Rs 10, with the State Bank of India (SBI), you can start an RD with a minimum amount of Rs 100, while for many private banks, the minimum deposit is Rs 500 per month. While some banks have no prescribed upper limit, most private sector banks allow you to invest up to Rs 14.99 lakh per month. A post office RD account is similar to an RD in a bank, but, has a fixed tenure of five years. However in a bank, the RD can be opened for six months to 120 months, or, 10 years in intervals of three months.


Method of earning interest: Says Surya Bhatia, a certified financial planner, "In an RD, you earn an interest on a compounding basis. Typically, the compounding is quarterly. So for instance, if you started an RD of Rs 1,000 from January 2012, the interest earned on your capital invested in February would be calculated for 11 months, while your RD in March will earn interest for 10 months."

Interest rates: While some banks, such as SBI, offer the same interest for an RD and for a FD, there are others who offer lower interest rates for RDs, compared with FDs. So, do compare the rates of banks before investing. For instance, HDFC Bank offers an interest rate of 7.25 per cent on an RD for 12 months, while on a regular FD of one year and one day to one year and 15 days, the rate is 9 per cent, while for a FD of one year and 16 days, the rate is 9.25 per cent. The bank offers 8.5 per cent for RDs of 15, 24 months, 9.25 per cent for 27, 36, 39, 48 and 60 months.

No TDS: The best feature of an RD is that there is no tax deducted at source (TDS). Adds Bhatia, "Although, RDs do not have TDS, the interest income is taxable on an accrual basis based on your marginal rate of tax." With no TDS, you don't have to open different RDs in multiple branches like you would have to with FDs to avoid TDS.

But, FDs offer you better ability to extract higher returns if you have ready funds to invest right away without spreading them over a few months. 

Happy Investing!!

 

We can help. Call 0 94 8300 8300 (India)

 

Leave your comment with mail ID and we will answer them

                        OR

You can write back to us at prajnacapital [at] gmail [dot] com

---------------------------------------------

Invest Mutual Funds Online

Transact Mutual Fund Online

Download Mutual Fund Application Forms from all AMCs

Download Mutual Fund Application Forms

Best Performing Mutual Funds

    1. Largecap Funds        Invest Online
      1. DSP BlackRock Top 100 Fund
      2. ICICI Prudential Focused Blue Chip Fund
      3. Birla Sun Life Front Line Equity Fund
    2. Large and Midcap Funds     Invest Online
      1. ICICI Prudential Dynamic Plan
      2. HDFC Top 200 Fund
      3. UTI Dividend Yield Fund
    1. Mid and SmallCap Funds    Invest Online
      1. Reliance Equity Opportunities Fund
      2. DSP BlackRock Small & Midcap Fund
      3. Sundaram Select Midcap
      4. IDFC Premier Equity Fund
    1. Small and MicroCap Funds             Invest Online
      1. DSP BlackRock MicroCap Fund
    1. Sector Funds              Invest Online
      1. Reliance Banking Fund
      2. Reliance Banking Fund
    1. Gold Mutual Funds             Invest Online
      1. Relaince Gold Savings Fund
      2. ICICI Prudential Regular Gold Savings Fund
      3. HDFC Gold Fund

Popular posts from this blog

Am you Required to E-file Tax Return?

Download Tax Saving Mutual Fund Application Forms Invest In Tax Saving Mutual Funds Online Buy Gold Mutual Funds Leave a missed Call on 94 8300 8300   Am I Required to 'E-file' My Return? Yes, under the law you are required to e-file your return if your income for the year is Rs. 500,000 or more. Even if you are not required to e-file your return, it is advisable to do so for the following benefits: i) E-filing is environment friendly. ii) E-filing ensures certain validations before the return is filed. Therefore, e-returns are more accurate than the paper returns. iii) E-returns are processed faster than the paper returns. iv) E-filing can be done from the comfort of home/office and you do not have to stand in queue to e-file. v) E-returns can be accessed anytime from the tax department's e-filing portal. For further information contact Prajna Capit...
Read more

National Savings Certificate

National Savings Certificate Here's everything you need to know about the 5-year savings scheme offered by the Government This is a 5-year small savings scheme of the government. From 1 July 2016, a National Savings Certificate (NSC) can be held in the electronic mode too. Physical pre-printed NSC certificates have been discontinued and replaced with Public Provident Fund-like passbooks. What's on offer The minimum amount you can invest in them is Rs100 and there is no upper limit. Under this scheme, all deposits up to Rs1.5 lakh qualify for deduction under section 80C of the Income-tax Act, 1961. The interest earned is taxable. You can invest in multiples of Rs 100. These certificates can be owned individually, jointly and also on behalf of minors. The interest rates for all small savings schemes are released on a quarterly basis. The effective rate for NSC from 1 October to 31 December is 8%. The interest is calculated on an annual compounding basis and is given along w...
Read more

Mutual Fund Review: HDFC Index Sensex Plus

  In terms of size, HDFC Index Sensex Plus may be one of the smallest offerings from the HDFC stable. But that has not dampened its show, which has beaten the Sensex by a mile in overall returns   HDFC Index Sensex Plus is a passively managed diversified equity scheme with Sensex as its benchmark index. The fund also invests a small proportion of its equity portfolio in non-Sensex scrips. The scheme cannot boast of an impressive size and is one of the smallest in the HDFC basket with assets under management (AUM) of less than 60 crore. PERFORMANCE: Being passively managed and portfolio aligned to that of the benchmark, the performance of the index fund is expected to follow that of the benchmark and in this respect, it has not disappointed investors. Since its launch in July 2002, the fund has outperformed Sensex in overall returns by good margins.    While every 1,000 invested in HDFC Index Sensex Plus in July 2002 is worth 6,130 now, a similar amount invested in Sensex then wo...
Read more

Different types of Mutual Funds

You may not be comfortable investing in the stock market. It might not seem like your cup of tea. But you can start by investing in Mutual Funds. Many first-time investors invest in Mutual Funds. This is because they do not know how to invest in individual securities. Basic information on Mutual Funds People invest their money in stocks, bonds, and other securities through Mutual Funds. Each Fund has different schemes with specific objectives. Professional Fund Managers look after these schemes. Your Fund Manager could help you invest in a scheme that suits your financial goal. Functioning of Mutual Funds You could make money through Mutual Funds in different ways. A single Mutual Fund could hold many different stocks, bonds, and debentures. This minimizes the risk by spreading out your investment. You could earn dividends from stocks and interest from bonds. You could also earn capital by selling securities when their price increases. Usually, you could choose to sell your share any t...
Read more

IDFC - Long term infrastructure bonds - Tranche 2

IDFC - Long term infrastructure bonds What are infrastructure bonds? In 2010, the government introduced a new section 80CCF under the Income Tax Act, 1961 (" Income Tax Act ") to provide for income tax deductions for subscription to long-term infrastructure bonds and pursuant to that the Central Board of Direct Taxes passed Notification No. 48/2010/F.No.149/84/2010-SO(TPL) dated July 9, 2010. These long term infrastructure bonds offer an additional window of tax deduction of investments up to Rs. 20,000 for the financial year 2010-11. This deduction is over and above the Rs 1 lakh deduction available under sections 80C, 80CCC and 80CCD read with section 80CCE of the Income Tax Act. Infrastructure bonds help in intermediating the retail investor's savings into infrastructure sector directly. Long term infrastructure Bonds by IDFC IDFC issued an earlier tranche of these long term infrastructure bonds on November 12, 2010. This is the second public issue of long-te...
Read more
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now