Know all about recurring deposits

NEW DELHI: Recurring deposit , also known as RD, is one of the most popular savings options among investors. These are a good alternative to long-term post office or fixed deposit schemes, since the investor can invest monthly for a fixed holding.

Once the holding ends, the maturity amount is credited to the investor's account. The maturity amount includes the principal amount and interest earned according to the applicable rates. In addition, the interest or benefit you earn from RD is not tax free.



What is the importance of investing in recurring deposits?



Recurring deposit is a profitable investment option that has less risk. While fixed deposit is a one-time investment option, RD is considered as the perfect option for those who have a regular income flow and can save money on a monthly basis.

The following are the tips that will help you understand the importance of investing in DR:

Flexibility to invest monthly : Compared to FD, recurring deposits offer investors the option of making regular payments. RD is a perfect option for those who do not have a large amount to save at once, but can save a decent amount at regular intervals.

Interest rates are good. : The interest rates on recurring deposits are similar to the interest rates on fixed deposits. Therefore, returns are high compared to other bank deposit schemes such as savings accounts.

The tenure of the deposit is short : Investing in a recurring deposit offers the option of depositing money for a shorter period of time, depending on the convenience of the investor. Since a fixed amount is kept aside for a certain period, it helps the investor to meet his short-term objectives.

Returns are guaranteed : Being one of the safest investment options, recurring deposits offer guaranteed returns since they are not linked to the market. Also, if there is a fluctuation in the economy, this will not affect returns. The investor would obtain a gain on the promised rate at the beginning of the RD. What is the eligibility criteria to request recurring deposits?

  • Any individual
  • A minor over 10 years old can open an RD account by providing proof of name
  • A child under 10 years old or under 10 years old can open an RD account under the advice of their guardian.
  • Any corporate organization, company, property or commercial organization
  • Any government organization


What are the necessary documents to request recurring deposit account ?



  • The application forms can be obtained from the bank in which you want to open the RD account
  • Passport size photographs
  • Proof of identity
  • Proof of address
  • KYC documents (if necessary by the bank)


Where to open an RD account?



A recurring deposit account can be opened with a bank or with the post office. The RD account can be opened either offline or online. To open the account offline, one needs to visit the nearest bank branch where he/she has a savings account. To open an account online, one can log in to his/her internet banking account.

In general, the amount of the investment is not the same in all banks. The minimum investment amount would be Rs 500 or Rs 1,000. In addition, the tenure of the deposit varies from six months to a maximum of 10 years.

To open an RD at the post office, it is necessary to visit the nearest post office. The amount of the investment here is Rs 10 per month with a five-year tenure. How to calculate the expiration value?

To know the expiration value, you can use the formula mentioned below:

A = P * (1 + R/N) ^ (Nt), where

A - expiration amount

P - the principal amount (investment amount)

N - capitalization frequency

R - interest rate

t - holding

The example is mentioned below:

For 12 months RD of Rs. 3,000 to 8 percent per year, the expiration value will be the sum of the series:

A = P * (1 + R/N) ^ (Nt)

= 3000*(1+.0825/4)^(4*12/12) = 3255.26

= 3000*(1+.0825/4)^(4*11/12) = 3233.18

= 3000*(1+.0825/4)^(4*10/12) = 3211.25

= 3000*(1+.0825/4)^(4*9/12) = 3189.47

= 3000*(1+.0825/4)^(4*8/12) = 3167.84

= 3000*(1+.0825/4)^(4*7/12) = 3146.36

= 3000*(1+.0825/4)^(4*6/12) = 3125.02

= 3000*(1+.0825/4)^(4*5/12) = 3103.83

= 3000*(1+.0825/4)^(4*4/12) = 3082.78

= 3000*(1+.0825/4)^(4*3/12) = 3061.87

= 3000*(1+.0825/4)^(4*2/12) = 3041.10

= 3000*(1+.0825/4)^(4*1/12) = 3020.48

Total amount invested in 12 months = 3000 * 12 = Rs 36,000

Total maturity value (sum of series) = Rs 37,638.44

Interest earned = Rs 1,638.44

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