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Home >Money >Personal Finance >Flexible RDs are better than regular RDs

MUMBAI : Mumbai: The recurring deposit (RD) is considered as the first step towards savings. It builds up a habit of putting away a certain amount of money every month to build up a small corpus. Traditional RDs can also be limiting—an individual can only invest a specific amount each month.

If you have some additional funds or if you wanted to augment your monthly deposits, it's not possible in a traditional RD. But banks now have a flexible RD alternative that allows an individual to deposit additional amounts as and when available.

The flexi RD has all the benefits of recurring deposits and, at the same time, provides additional convenience and flexibility. "They offer the same returns as regular RDs, but give you the flexibility of augmenting your investment whenever you have the funds. This can help you build a much bigger corpus over time," said Adhil Shetty, CEO, Bankbazaar.

To highlight the benefits of flexible RDs, Shetty gives an example. Several banks offer long-term tax-free RDs. When you start investing, you may have been able to invest only a certain amount, but say, a couple of years down the line, you may have more funds at your disposal, and you can increase the money you put away every month.

The flexi RD comes with two components—one fixed and one variable. The fixed component is the specific amount you commit every month, while the variable component can change.

Opening the flexi RD is similar to the regular RD. "Once you open the flexi RD, you can invest the variable amount in specified multiples. Note that the bank will set a cap on the amount that can be invested in one month or financial year," said Shetty.

The interest on the fixed amount is as per applicable rates. In most cases, the fixed amount must be deposited on the pre-determined date. Else, the bank will levy a penalty. The flexible amount can be invested at any time of the month, and no penalty will be levied.

Some banks may also allow pre-closed flexi RD schemes at any time without any premature closure charges though not all banks allow it. "It is important to remember that different banks have different criteria around how much additional deposit you can make in one year, the tenor of the RD, and pre-closure," said Shetty. So make sure you understand these very clearly before you invest.

(Do you have personal finance queries? Send them to mintmoney@livemint.com and get them answered by industry experts)

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