Compare - Recurring Deposit

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Under a Recurring Deposit, a specific amount is invested in a bank on monthly basis (say 1000 per month for 12 months) for a fixed rate of return, which is currently around 8.50% p.a. The deposit has a fixed tenure, at the end of which the principal sum as well as the interest earned during that period is returned to the investor. Recurring Deposits provide the element of compulsion to save at high rates of interest applicable to Term Deposits along with liquidity to access those savings any time. There is greater flexibility in period of deposit with maturity ranging from 6 - 120 months. Loan/overdraft facility is also available against these Recurring Deposits. As interest rates offered by banks and non-banks keep fluctuating at regular intervals, these recurring deposits are not attractive. Generally, employees use Recurring Deposits to meet the educational expenses of children when they grow up. These are very long-term investments generating lower returns because of the tax deducted at source on maturity. As the returns earned on Recurring Deposits are lower than the inflation rate, it makes tremendous financial sense to invest in a series Chit Funds sequentially so that the investments generate highest returns over an extended period of time. 

Group Funds provide a higher return of 12-16% p.a. in the form of dividends if the non-prized subscriber stays in the scheme without taking the prize money till the end. There will be a compulsory saving which will earn dividends every month. Even if we take it in the last month, the total dividends earned will be more than the bank interest rate. The returns generated in Group Funds is more stable than recurring deposits as the discount rate in bids is insensitive to the interest rate fluctuations in the economy. The dividends earned in a Group Funds are not taxable. If you want to claim the bid as loss then these dividends has to be shown as revenue income in the assessment. Hence, the entire dividend earned in a Group Funds is not taxable if you don't claim the bid amount as loss. The post-tax earnings can be higher in case of Group Funds when compared with other traditional saving instruments.

 

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