Amount Invested Vs Return
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Recurring deposit (RD) is an investment avenue offered by most banks and financial institutions in India. The term recurring means something that repeatedly occurs over a period of time. It is preferred by investors since it is one of the low-risk investment options that offers higher returns than a regular savings bank account. It also offers flexible tenure options. Recurring Deposit is somewhat like a Fixed Deposit, however, it offers higher flexibility. Therefore, by investing in an RD, investors can allocate their funds via instalments rather than depositing a lump sum amount in one go.
As there are many banks offering RDs, before narrowing down on one RD, it is important to know details such as instalment amount, interest rate, and deposit tenure to ensure better returns. fisdom’s RD calculator helps in calculating the returns that can be expected out of a RD investment on the basis of these factors.
It is an easy-to-use simple calculator with quarterly compounding of interest. There are 3 main fields to be filled for ascertaining potential earnings from a recurring deposit investment. These are:
Here are the steps to use the RD calculator for estimating returns from an RD investment:
Once you have input all the values as per the steps mentioned above, the two blue bars on the right-hand side of the tool will provide the total value invested and total maturity value. If you wish to see changes in returns based on changes in one of the factors, such as interest rate, deposit amount or tenure, you can do so by adjusting the corresponding sliders.
It is important to note that the returns calculated by the tool are based on interest being compounded quarterly.
A recurring deposit is a continued investment. The returns on this investment can be difficult to track at times, since the calculations could be challenging due to the presence of many variables and interest being compounded quarterly. Here is how an investor can simplify RD return calculations using the RD calculator:
As per new RBI regulations, RD investment returns are liable for TDS deduction. However, investors must make the TDS deduction calculations manually since the post tax return on RD depends upon your individual Income tax slab.
Additional read – SIP vs RD – Which is better?
Most banks offer interest on recurring deposits compounded quarterly. For this, banks make use of the following formula to determine the maturity value of RD:
M =R[(1+i)n – 1]/1-(1+i)(-1/3)
M = Maturity value of RD
R = Monthly installment towards RD
n = Number of quarters (investment tenure)
i = Interest rate / 400
While this formula can be used for manual calculations or for better understanding of returns calculation for RD investment, it is primarily what goes into the back-end of automated online RD calculators.
Recurring deposit investments are ideal for investors who want to invest small amounts of money in a phased manner. Investors looking for a low-risk avenue with higher returns can consider investing in RDs.
As far as eligibility of RDs is concerned, all Indian residents and Hindu Undivided Families (HUFs) are eligible to invest in these. Some banks may also permit minors to invest in RDs to encourage a savings habit at an early stage in life. Minors investing in RDs must have guardians to manage their finances.
Returns on RD investments attract tax deducted at source, i.e. TDS, just like FD returns. Tax on RD returns is levied @ 10% p.a. if the deposit value is more than Rs. 40,000. Only the interest earnings on RD investments are taxable and not the full maturity value of investment. Investors who do not have any taxable income must submit Form 15G to the bank. This ensures that no TDS on recurring deposits is applicable to them. You are liable to pay interest at your slab rate on RD interest.
RD investment is a good option for those who do not wish to invest a bulk amount in one go. With regular installments in RDs, investors can earn higher returns in the long run. By using fisdom’s RD calculator, investors can know the best combination of investment amount and tenure. This allows better financial planning, especially from a future perspective.
The interest amount to be earned at maturity on a Fixed Deposit is higher than that on RD. RD is low risk and requires small amounts of investment. SIP is slightly high on risk but requires a small portion of investment. SIP returns are not fixed and depend on stock market performance. Therefore, RD and FD are suited to low-risk investors requiring fixed returns, whereas SIPs are suited to investors who are willing to take on risk for better returns.
RD investment cannot be withdrawn at any time and therefore restricts liquidity in the hands of investors. Investors cannot modify the monthly investment amount in RD. It also offers a comparatively lower interest rate than FD investments.
RD withdrawals cannot be made at any time and attract a certain penalty percentage on withdrawals.
The minimum RD tenure is six months and can go up to 10 years.
RD scheme can be started with a minimum amount as low as Rs. 1,000 per month. Different banks may have different minimum amount requirements on RD investments.