The numerous articles in print, and coupled with free advice from investment gurus in electronic media, end up thoroughly confusing investors, especially smaller ones and at times leave them with negative returns. In spite of the availability of many complicated and cumbersome products, Recurring Deposit (RD) can still be considered as the best investment option as it is proven, trusted and time tested.
ITS ADVANTAGES
Despite many advantages associated with the RD, it seldom receives the attention it deserves. Statistics prove that banks have also slowly moved away from encouraging the age old product. RD scores above many products available in the market and some of the points are:
Advantage of compounding is an inbuilt factor.
All instalments fetch equal interest rate equal to the term of the RD, despite the fact that some stay invested for a lesser period.
Though the interest is taxable in the hands of the assessee, Banks do not deduct TDS on RD accounts in tune with prevailing tax laws.
No hidden charges, or rather, RD comes with nil charges attached.
Many banks offer modified and upgraded versions of RD like flexi RD wherein the instalment can differ within a range depending upon the disposable income.
This feature offers a lot of flexibility to investors, against the erstwhile system of levying penalties for non-payment of the fixed instalment.
With the popularisation of Internet banking, there is no need to visit the bank and any number of RDs can be opened at the press of a button. Also, Net banking facility offers premature closure, in case of necessity.
To go further, one can open a number of RDs so that proceeds can be used as provision against future expenses like life/general insurance premiums, annual car maintenance charges, pleasure travel expenses, children tuition fee and many more such recurring expenses. The trick lies in matching the maturity of RD with the upcoming expenditure.
It has been my experience that many learned people follow the RD route. Still, the product needs to be encouraged and adopted by all in a big way.
(The author is Credit Analyst with Corporate Accounts Group branch of SBI, Hyderabad)