Why and How to Invest in Recurring Deposits
Recurring Deposits (RDs)
RD is a form of term deposit offered by Indian Banks through which a fixed amount can be deposited periodically by the individuals. RD and Fixed Deposits(FDs) are two highly popular investment opportunities for Indians. Both deposits are risk-free but are different to each other on various grounds. The primary difference between the two is that in FDs, one cannot add to the principal amount on a monthly basis.
Here are some reasons on why and how one should invest in Recurring Deposits.
Advantages of Recurring Deposits
RDs offer numerous advantages to investors. The primary benefit of investing in RDs is the flexibility. Therefore, RDs are one of the best options for short-term investments that offer guaranteed returns. One can also use RD calculator to determine the amount of interest upon maturity.
Individuals can have the option of availing loans by keeping RDs as collateral. Additionally, investors can decide a fixed amount that is to be deposited to their RDs every month. It helps in developing a saving habit that enables salaried individuals to maintain and grow their savings.
How to invest in RDs
All one needs to do to open a Recurring Deposit is to contact the nearest branch of your bank and tell them that you wish to start a recurring deposit. The amount due periodically and the tenure of the investment will be decided at the time of opening the RD account. Payment can be made in any way that is convenient to the account holder, such as fund transfer, ECS or online banking.
Tax on RDs
TDS (Tax Deducted at Source) is applicable on the interest gained on RDs. The TDS applicable on RDs is the same as FDs. However, unlike the deductions available in tax saving FDs under section 80C of the Income Tax Act of India, there is no deduction available for recurring deposits. One is not liable to pay tax only if the total income of the individual falls below the tax slab.