Recurring deposits and the small investor
It is said that when it comes to people and investment, there really are two core groups of investors. One category comprises those that prefer life on the edge. They take their chances and go for the high-risk, high-growth option. No major issues with this approach and there are many that swear by its effectiveness. Some of the investment vehicles that have found favour with this group include Futures & Options, the stock market & the realty sector
On the other hand, there is the group that chooses to opt for the steady, incremental growth route. They tend to save a fixed amount of money and look for options that are rather safe when it comes to the ROI (return on investment) factor. They hate the volatility of riskier investments such as stock market trades and the derivatives market. For them, recurring deposits seem like a more attractive option.
Pretty similar in approach and treatment to the time and tested fixed deposits (FD's), RD's as they are called, are quite popular among investors. The one factor that differentiates RD's from their other cousin, is the fact that instead of making a one-time payment, people can save away a fixed amount each month. Such an approach has multiple advantages. Chief among these include the fact that it encourages people to save & invest a certain amount each month.
People in general, can be quite lazy about savings. In most instances, they run through their earnings even before half the month is over. The recurring deposit option therefore proves to be a boon for such people. Another section of people that benefits significantly from this are the small investors. They usually do not have the wherewithal to invest in high return investment avenues, like the stock markets.
The great thing about RD investments is that people don't even need to have access to banks and other financial institutions. All they need to do is trundle into their nearest post office and open up an RD account for as low as Rs. 10! Given that there the post office network is spread throughout the nooks and crannies of the country, it allows people from even the most remote of places to become investors. Second, with very little formalities to be conducted and the fact that investors and this low an entry barrier, even the workforce from the informal and rural sector can invest their savings into a growth scheme.
What's more, the past couple of years have seen a rising trend in recurring deposit interest rates. This has led to an increase in demand from people looking for safer alternatives than the volatile financial trading markets. These come from sectors where the percentage of informal employment is quite high.
Those looking to invest should bear in mind that defaults can create quite a bit of trouble. While the post office may offer some leeway, the banks usually tend to penalize heavily in most instances. Chronic defaulters may even have to forfeit a certain percentage of the interest being earned or in some extreme cases; they may be compelled to forego the entire deposit itself. The other problem is that while recurring deposit interest rates are on the up, there's still the inflation factor that needs to be accounted for. Investment experts therefore advice that a single or two pronged approach can leave one exposed on the financial front. People should therefore take a balanced view on investments and spread their risks far and wide to maximize their ROI's.
On the other hand, there is the group that chooses to opt for the steady, incremental growth route. They tend to save a fixed amount of money and look for options that are rather safe when it comes to the ROI (return on investment) factor. They hate the volatility of riskier investments such as stock market trades and the derivatives market. For them, recurring deposits seem like a more attractive option.
Pretty similar in approach and treatment to the time and tested fixed deposits (FD's), RD's as they are called, are quite popular among investors. The one factor that differentiates RD's from their other cousin, is the fact that instead of making a one-time payment, people can save away a fixed amount each month. Such an approach has multiple advantages. Chief among these include the fact that it encourages people to save & invest a certain amount each month.
People in general, can be quite lazy about savings. In most instances, they run through their earnings even before half the month is over. The recurring deposit option therefore proves to be a boon for such people. Another section of people that benefits significantly from this are the small investors. They usually do not have the wherewithal to invest in high return investment avenues, like the stock markets.
The great thing about RD investments is that people don't even need to have access to banks and other financial institutions. All they need to do is trundle into their nearest post office and open up an RD account for as low as Rs. 10! Given that there the post office network is spread throughout the nooks and crannies of the country, it allows people from even the most remote of places to become investors. Second, with very little formalities to be conducted and the fact that investors and this low an entry barrier, even the workforce from the informal and rural sector can invest their savings into a growth scheme.
What's more, the past couple of years have seen a rising trend in recurring deposit interest rates. This has led to an increase in demand from people looking for safer alternatives than the volatile financial trading markets. These come from sectors where the percentage of informal employment is quite high.
Those looking to invest should bear in mind that defaults can create quite a bit of trouble. While the post office may offer some leeway, the banks usually tend to penalize heavily in most instances. Chronic defaulters may even have to forfeit a certain percentage of the interest being earned or in some extreme cases; they may be compelled to forego the entire deposit itself. The other problem is that while recurring deposit interest rates are on the up, there's still the inflation factor that needs to be accounted for. Investment experts therefore advice that a single or two pronged approach can leave one exposed on the financial front. People should therefore take a balanced view on investments and spread their risks far and wide to maximize their ROI's.
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