Project on Asset Class :- Recurring Deposits

Submitted To :- M/S Shailja Vashisht Submitted by :- Sheenam Kansal

Class : MBA 2’C’ Simran Kakkar
Yogesh Dudeja
 Introduction
 A Recurring Deposit, commonly known as RD, is a unique term-deposit that is
offered by Indian Banks. It is an investment tool which allows people to make
regular deposits and earn decent returns on the investment.  Due to the regular
deposit factor and an interest component, it often provides flexibility and ease of
investments to users/individuals.
 However, it is essential to know that RDs are different from Fixed Deposits/FDs .
RDs are flexible in most aspects. An RD account holder can choose to invest a fixed
amount each month while earning decent interest on the amount. RDs are an ideal
saving-cum-investment instrument.
 Most major banks in India offer recurring deposits accounts, with a term that often
ranges between 6 months  to 10 years, also providing individuals with the
opportunity to choose a term according to their needs. However, the interest rate,
once determined, does not change during the tenure; and on maturity, the
individual will be paid a lumpsum amount which includes the regular investments
as well as the interest earned.
Features of a Recurring Deposit Account

 Recurring Deposit schemes aim at inculcating a regular habit of saving in people

 The minimum amount for deposits often varies from one bank to another. You
could invest with an amount as small as Rs. 1000.
 The minimum period of deposit is six months, while the maximum period of a
deposit is 10 years
 The rate of interest is equivalent to that offered for a Fixed Deposit. Therefore, the
interest rates are higher than Savings Account.
 Premature withdrawals are However, depending on the bank, they may allow you
to close your account before the maturity period on certain conditions.
 A Recurring Deposit can be funded periodically through Standing Instructions that
are usually instructions given by the customer to the bank, to credit the RD account every
month from his/her Savings or Current Account.
 Ways of opening RD account
 Online opening of RD account
After logging on with your Internet banking username and password, you can open
an RD account online. Typically, online RD can be opened only between 8 AM and 8
PM. The name and mode of operation and branch of a newly generated RD account
will be same as in the savings account from which RD account is funded.

On submission of a request for opening a recurring deposit account, a standing

instruction will be set up to debit installments to the indicated savings account every
month for the tenure and amount selected. Some banks may allow offline deposit of RD
instalments, however, the first instalment needs to be made online.

The first instalment shall be debited on the date of opening of the recurring deposit
account. Subsequent installments shall be debited on the selected day of the month.  ..

 Steps to open RD online

1. After logging in to net banking, under Fixed Deposit, click on 'e -RD (RD) / e- SBI
Flexi Deposit'

2. If you have more than one account in the bank, all will be shown, i.e., savings
and current accounts.

3. Choose the one with which you wish to link your RD account

4. Choose amount of monthly instalment and the tenure. The tenure will decide
the interest rate which is usually similar to the fixed deposit rate. Seniorcitizens
may get additional interest rate.

5. Click the senior citizen option, if eligible.

6. Opt to receive the maturity amount into savings account or convert the maturity
amount into a fixed deposit.
 7. After validating for 'terms and conditions', click on submit.

8. On the next page, name, mode of holding and nomination as per the linked
savings account will be shown.

9. Once you press the confirm button, the RD gets created and a reference number
and an e-RD account number gets generated.

10. You may view, download and print the e-RD details.

11. Additionally, if you wish to set up a Standing Instruction (SI), you can do it
online.

 opening RD account Offline

 Opening an RD account offline is also very simple. All you need to do is go to the
bank branch and fill up a form for opening a recurring deposit account. You need to
fill up the required details and submit it to the bank along with a cheque for the
installment amount. If you are a customer of the bank then you need to put in your
bank account details along with other details such as maturity instructions and
nomination details.
 If you are opening an RD account in a bank in which you do not have an account,
then you will have to provide your KYC documents along with the account opening
form and other details. You will need to decide the RD tenure, the installment
amount, the nomination details and the maturity amount. You will need to either
give standing instructions to your bank for a periodic debit to the bank account or
personally deposit money in your RD account to ensure the installments are met. If
you want to get an exemption from TDS on your interest, be sure to submit Form
15G/15H.
 Once the RD is processed and opened, the bank will provide an RD certificate
bearing all the details.
 Recurring Deposit - Eligibility

 Resident Indians can apply.

 The minimum balance of deposit is Rs. 500 per month and thereafter, in multiples
of Rs. 100.

Documentation required to open Recurring Deposit

Identity proof

 Passport
 PAN card
 Voter ID card
 Driving licence
 Government ID card
 Photo ration card
 Senior citizen ID card

 
Address proof

 Passport
 Telephone bill
 Electricity bill
 Bank Statement with Cheque
 Certificate/ ID card issued by Post office.

Performance of RD

 This investment is ideal if you are looking to save small amounts of money month
after month. In a way, it's lighter on your pocket, especially at such times when
daily expenses are touching the roof. Moreover, it instils in you financial discipline.

 You can open a recurring deposit either with banks or with the post office. The
minimum amount of investment varies from bank to bank. For example, in ICICI
Bank and HDFC Bank, the minimum investment amount for RD is Rs 500 per
 month, whereas in Axis Bank, it is Rs 1,000. The tenure usually ranges from six
months to a maximum period of 10 years.
 The investment amount is lower at Rs 10 per month for post office but the tenure
of investment is five years. However, it allows partial withdrawals.

Most banks allow only premature withdrawals. The interest rate applicable for
premature closure of deposits (all amounts) will be the lower of either the base
rate for the original or contracted tenure for which the deposit has been booked,
or the base rate applicable for the tenure for which the deposit has been in force
with the bank.

Also, an investor has the option of prematurely withdrawing the amount after
three years in post office RDs. Bank rates are over 8% for one-year RDs. The post
office offers a rate of 7.5% (quarterly compounded) on the five-year RDs.

Comparison of RD V/S FD

Fixed Deposit Recurring Deposit

1.Investment amount:
A person who can afford to invest a
If a person intends to invest a lump small prefixed amount of money every
sum amount at one time, then he can month can do so in Recurring Deposits
to do so in a Fixed Deposit which is in any bank or financial institution.
provided by any bank or financial
institution.

2. Tenure:
Here, the tenure ranges from 7 days to The tenure ranges from 6 months to 10
10 years. It is upon the individual to years. The individual has to choose the
choose the tenure period. tenure period.
3. Interest amount:
The interest amount earned at the end
The interest amount earned is lesser
of maturity of a Fixed Deposit is higher
than the interest earned on an FD.
than the interest earned on an RD.
4.Interest:
The interest gets credited on a The interest earned on an RD is paid on
quarterly /monthly or on maturity maturity along with the capital amount.
5. Loan facility:
A person can avail loan against his Loan facility is also available for
Fixed Deposits. The loan amount can Recurring Deposits. The maximum limit
differ, and the maximum limit can be is up to 90% of the deposit amount
90% of the value of the Fixed Deposit. value.
6. Motivating factor:
Recurring Deposit enables a person to
A person with a surplus amount can
invest a fixed amount of money at
invest in a Fixed Deposit plus earn
regular intervals. This automatically will
money as interest.
instil the habit of savings in a person.
7. Default clause:
If a person fails to make the payment
A person cannot default in payment as
of instalments for six consecutive
it is done once at the beginning with a
months, then the bank has the right to
lump sum amount.
close such Recurring Deposit account.

Comparison of RD and Mutual funds

Mutual funds Recurring Deposits

Frequency The investment in mutual fund via SIP

The investment in Recurring Deposit is
of can be done on weekly, monthly and
done at fixed frequency which is
investmen quarterly basis as per the convenience
mostly monthly
t of the investor

Investmen Mutual Fund offers different schemes There are no schemes or options under
t Schemes to the investors as per their recurring deposit, investor has no
investment objective. option to choose different variant or
 features under Recurring Deposit

Mutual Funds offer variable returns as

Recurring Deposit offer fixed returns
per the scheme opted by the investor
based on the interest rate. The
and performance of the scheme in the
Returns investors earn return as per the rate of
market. The investors as per their
interest offered by the bank on
investment appetite choose the
Recurring deposits.
scheme and shall enjoy the returns.

Investment in Mutual Funds via lump

Recurring Deposits of Banks are not
sum or SIP is market linked. The
Market related to market performance, and
returns receivable by the investor are
Linked hence they offer fixed returns as per
not fixed as they fluctuate as per
interest rates offered by banks
market performance.

Recurring Deposits tenure is as per the

Mutual Fund is for varying duration i.e.
Maturity
investment can be made for a period
Date
of short or medium or long term
provisions of the bank usually for a
period of one year. The investor has to
start a new recurring deposit at the
end of tenure if they wish to continue
the RD. Recurring Deposits have
maturity date

Mutual Funds offer high liquidity. The
investor can withdraw money at
Liquidity anytime however an exit load is to be
paid if the withdrawal of the money is
done within 1st year of investment.
Recurring Deposits offer liquidity to
the investor. Investors at any given
time can withdraw the money invested
in recurring deposit by bearing early-
withdrawal charges.

The risk associated with mutual fund

is greater as compared to recurring
Investment in Recurring Deposit is a
Risk deposits. The risk associated with
safest investment as there is no risk of
associate mutual fund depends on the fund opted
capital loss associated while investing
d by the investor as the returns are
in bank’s RD.
associated with the market
performance of the fund

Investment in Recurring Deposit is

Financial Investment in Mutual Fund aims in
usually aimed for wealth accumulation
Aim financial planning for all life goals.
for short financial horizon

Suitability of the investment

 The minimum investment amount to be deposited every month in an RD scheme is
as low as Rs. 1000. This is a major attraction for people with low income and salaried
people.
 As the investor has to invest a part of his income regularly, it is highly beneficial in
inculcating the habit of saving.
 Payment to one’s RD account can be made directly from his Savings or Current
Account.
 An RD Account can be linked to one’s Savings Account. Hence, it does not require
any documentation work under these circumstances.
 RD Schemes, the deposited amount is safe and secure and will be returned along
with interest at the end of the fixed tenure.
 The rate of interest offered on a Recurring Deposit is as much as the interest
offered for Fixed Deposits.
 The interest rate on RD is locked-in. So, one need not worry about a fluctuation in
interest rates.
 Recurring Deposits are the best investment option, particularly for those planning
to tackle short-term financial situations like funding money for dream vacation or
wedding, higher education costs, etc.
 Under the Flexible Recurring Deposit scheme offered by some banks, the investor
will not be penalised if he fails to deposit the amount in a particular month.
 Senior citizens are given a higher rate of interest. It is usually 0.5% more than the
regular interest given to others.
 Nowadays, almost all popular banks are offering online Recurring Deposit facility.
With this online facility, one can deposit money in their RD Account, close the RD
account, view transactions and update necessary information. All this can be done from
the comfort of one’s home, at their own convenient time without having to visit the bank
at its working hours.

Tax implications
 Recurring Deposits attract no tax exemptions. Income tax has to be paid on the
Interest amount received from Recurring Deposits. The tax has to be paid at the
rate of the tax slab of the RD holder.
 TDS (Tax Deducted at Source) is applicable on Recurring Deposits. It is deducted at
10% on the interest earned which exceeds Rs. 40,000( Rs.50000 for senior citizens).
This rule has come into effect since April 2019. However, no TDS is deducted on an
interest earned up to Rs. 40,000( Rs.50000 for senior citizens).. This is done to
safeguard the interest of lower income investors
 Form 15G has to be submitted by the investors with no taxable income to avoid
TDS on Recurring Deposits. Form 15G is applicable for people under the age limit of
60 years.

Four factors that make RD a wise investment

 Returns :- Returns on bank RD are fixed by banks and banks have the right
to change them at their sole discretion . The current rate of interest on bank
RD is between 6% to 8%

 Risk :-RD are generally considered to be risk free in nature , provided they
are opened with scheduled commercial bank regulated by RBI . Bank RD are
relatively less risky as compared to mutual fund SIP.

 Ease of investment :- In RD scheme the investor has to deposit a fixed

sum every month which will build up a savings discipline . For salaried
customers ,it will be easier to set aside a particular amount every month as
savings . Also RD scheme comes with guaranteed returns and rate of interest
for RD is locked in , which will protect the investor from fluctuations in
interest rates.

 Flexible Recurring Deposit :- A flexible RD offers convenience and

complete flexibility to depositors, where lump sums can be invested as and
when available. Every Flexible recurring Deposit has to be opened with a
core amount for a particular tenure. This amount changes depending on the
bank where the RD is being held.

Conclusion
For people with limited funds at their disposal, looking to save fixed amount of
money every month in a bank account, RD is a good investment option. The return
on these deposits is guaranteed provided all the Instalments are paid on time. RD
accounts are fairly easy to open/operate/maintain. Most importantly it enables
investors to accumulate sizeable reserves over a period of time by putting away a
small portion of their savings every month.