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Recurring Deposit Scheme or RDs: For whom?
With a guaranteed return on your investment, you can choose to invest a fixed amount on a monthly basis based on your disposable income to garner a lump sum amount on the maturity of the scheme. Also, based on your liquidity and other parameters, you can further renew the scheme for another pre-defined term. However, while locking your funds into a RD scheme, ensure that your choice of the term as well as selected amount of saving for the month on month basis is carefully opted for. As, premature withdrawal from the scheme results in levy of penalty and also choice of higher investment amount can result in default on your part.
The investment into RD schemes works well for individuals who intend to make regular and consistent small savings instead of one lump-sum payment towards the investment. Thus with returns almost at par with fixed deposits, recurrent deposit schemes enable saving for meeting certain pre-planned financial goal in future time frame Also, such schemes with shorter as well as long-term horizon cater to investors with both short and long tenure for investment. As a result, individuals looking to liquidate their investment in shorter span of time say 6 months can consider investment into RD schemes.
Also, if you are a conservative or a risk-averse investor, RD schemes with low investment amount distributed over the term of the scheme will be ideal. Another category of individuals for whom the recurrent deposit investment can be effective is those who fall in the low income tax bracket. Also, as TDS is not deducted on RD investment it spares individuals with low income and senior citizens of submitting form 15H and form 15G for avoiding tax deduction at source. So, in case you form the part of higher tax-slab individuals, investment into RD schemes will not be a wise decision.
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