Recurring Deposits are a popular investment instrument in India. They are also one of the most trusted investment options among Indians. An RD lets you invest small sums at regular intervals and enjoy the benefit of assured returns. This allows you to conveniently determine how much money you will receive when your RD matures.
It is also a low-risk option since it is unaffected by stock market volatility. The RD interest rates are decided when you open one and remain the same throughout. At the end of the RD's tenure, you receive the principal amount deposited along with the interest earned at the decided rate. While an RD is preferred and offers multiple advantages to investors, you need to consider certain factors before opening this deposit. One of which is the investment period.
Reasons to consider the investment period
Today, you can easily open your RD online. This keeps you from travelling to the bank to open an RD. Instead, you can conveniently open your deposit online anywhere and anytime. When opening your RD online, one crucial element you need to consider is the investment period or tenure of the RD. They have a fixed investment period. Depending on your preferred bank, this could range from approximately 91 days to five years or more.
Pick a tenure that matches your financial goals. For instance, you may require the money in the short term. In such a case, selecting a shorter tenure when opening an RD online using your Banking app is better. If you are investing in an RD to fulfil a long-term goal, like paying for your child’s higher education, you may want to choose a longer investment period.
Other factors to consider
Besides the investment period, you should also consider the following other elements when opening a Recurring Deposit:
- Frequency of deposits
When you opt for an RD, you need to make deposits regularly. This could be on a quarterly, monthly, or annual basis. Some banks also let you make daily payments for your RD. So, choose a deposit frequency that matches your financial situation.
- Interest rates
Recurring Deposit interest rates vary across banks. So, compare the rates before you open RD.
- Tax implications
The interest you earn on your RD is taxable. Hence, consider the tax implications before opening an RD.
- Premature withdrawal charges
Most banks charge a penalty when you withdraw your RD prematurely. Hence, besides the RD rates, you need to know the penalty fee for withdrawing your RD before the end of its tenure.
Conclusion
An RD can be a good choice when you want a low-risk investment offering assured returns. However, before you open it, you need to consider the investment period and other essential factors.
