How it works?
You can open a recurring deposit at any bank, with a very small sum. What recurring deposits means is that you invest a fixed sum every month. For example, if you invest Rs 1000 for the next 36-months in a recurring deposit, you can generate Rs 36,000 only by way of principal amount. In addition the amount would also attract interest at say around 8-9 per cent annually.
Meets needs at a future date
Recurring deposits are the best when it comes to meeting your future needs. Say you are looking at buying a laptop 10 months down the line. By investing Rs 3000 in recurring deposits for the next 10 months, you would probably be home with a computer 10 months down the line. Of course, we have not calculated the interest which your recurring deposit would generate.
A simple effort
For those who are new to investing, recurring deposits require just a few formalities to open an account. Existing saving account holders with banks who are net savvy can also use their internet banking to open a recurring deposit account.
Very small amounts
Recurring deposits, if opened at PSU banks require very small amounts. For example, at a government owned bank you can start with amounts as low as Rs 100. Also, the minimum tenure for recurring deposits is 6 months. You can break your deposit before the period, but there would be a penal interest for the same.
You can nominate other individuals
Nomination facility as in the case of other deposits is also available for these deposits. You can also avail loans against these deposits in case of an emergency.
All in all, Rds an excellent instruments for novices in the field. Recurring Deposits would inculcate a disciplined approach by forcing you to invest a fixed sum each month. It's also important to remember that interest on these deposits are fully taxable. What this means is that you would have to add the interest so earned to determine your tax liability in the future.