Investing to save for the future is an act every person does at different stages of life. However what mode of investment he uses differs from person to person. Risk appetite of the investor as well as his financial standing (amount of money he is able to invest at one time) are two major factors incremental in deciding the type of investment suiting the investor best.
The conservative investor mainly opts for bank deposits because of the lower amount of risk associated with them. In bank deposits, the investor gets option to choose between fixed deposits as well as recurring deposits. For individuals having big sum of money to invest fixed deposit is a good option, but for the small investor it might pose an issue.
Thus to the aid of the small investor comes Recurring Deposit.
What is a Recurring Deposit?
A recurring deposit (RD) is a savings instrument operating very similar to a fixed deposit. The basic difference between the two lies in the fact that a fixed deposit requires a one time lump sum investment while recurring deposit requires monthly investments in equated amounts.
It is ideal for the investor who has small amount to invest every month. It also acts as a good source of saving for the investor.
A RD can be opened with a bank or with the postal department of the country.
Characteristics of a Recurring Deposit
1.It allows for investment of a fixed amount per month.
2.The tenor of the deposit can be fixed at the time of starting the scheme. The payment amount is fixed beforehand which needs to be paid every month for the entire tenor of the deposit.
3.Maturity period of the loan lies between 6 months to 10 years.
4.The rate of interest is fixed in nature for these deposits.
5.Nomination facility is allowed with RD by most banks.
Advantages of Recurring Deposit
1.It offers a monthly saving avenue for the investor.
2.Many banks offer loan and overdraft facility over a RD.
3.The fixed amount to be invested in RD every month can be transferred directly from the savings account of the individual.
4.It is flexible as per the monthly budget of a person as the equated monthly amount to be invested can be decided by the customer himself at the beginning of the scheme.