Recurring Deposit - Why Invest?

Recurring Deposit can be described as an investment that is risk averse and gives guaranteed returns especially if you have short term investment goals.

It is suitable for short term goals that involve a time span of 1 to 3 years and it is the right financial product if you are planning to tackle short term situations that require immediate financial assistance.

They are also a financial product where one can not only invest but at the same time generate a regular monthly income.

 It is similar to other forms of investment with the only difference being that here we invest small amounts every month in a very systematic way.

The amounts are like fixed deposits in that they are taxable, which does not make them a very attractive investment option for tax purposes.

You can invest in them if you want to save for regular purposes, but for tax purposes this is not a good investment.

One needs to compare the interest rates before you invest, as these have undergone a lot of changes in recent times.

 Interest rates on recurring deposits are fully taxable though it still considered one of the best and the safest forms of investment in India.

You will be required to deposit a fixed amount every month for a select tenure and the amount will earn interest.

The effectiveness of the investing in such schemes depends on its features and ability to meet the investors objectives and financial goals.

Recurring Deposit can be viewed as a better investment as it does not involve market risk and you are assured a guaranteed return on investment.

The interest Rates offered by banks for recurring deposits depending on the principal amount and tenure of the deposit.

You will find most banks offering these products through Net Banking and investors can make a deposit online without any hassles.

Flexible recurring deposit schemes allow deposits of any amount at any time and one can make a deposit a small amount every month and one does not need to invest a lump sum to start a recurring deposit.

Interest Rates are low when compared to other forms of investment and customers get an interest rate that varies for Recurring deposits.

Recurring deposits give guaranteed but low returns when compared to other popular investment schemes like Mutual Funds and SIPs.

In case of withdrawals from a recurring deposit account before the end of tenure there is a penalty and instant withdrawals may not be possible in case of a financial emergency.

In case the RD is not flexible, the customer will not be able to change the monthly investment amount.

The customer can deposit money in a recurring deposit account, close the account, update information, view transactions, deposit details and do much more online. 

It is about making an investment and earning interest without even having to leave your home while investing in a recurring deposit.

Interest rates depend on the tenure and deposit amount and in most cases, the recurring deposit interest rate is very similar to that of fixed deposits.

 Interest rates vary  depending on the bank and the plan chosen by the customer. 

Also, many banks offer higher interest rates for senior citizens and can also use a RD calculator to find how much interest you will accumulate for the deposit amount, interest rate and tenure.

If you are a salaried employee you can set aside a particular amount every month as savings and for this recurring deposit is the best option. 

Also, RD schemes come with guaranteed returns and the rate of interest for RD is locked in which will protect the investor from changes in the interest rate.

Some banks offer flexible Recurring Deposit schemes where the investor will not be penalized if the amount is not deposited during a particular month. 

Also, in a flexible RD scheme, you will be able to withdraw the amount from your RD account anytime you want

When you deposit the money in an RD, you will never have the privilege to withdraw any part of the money until the term of the deposit is over. 

Hence, if you are looking for an easy liquidity instrument, recurring deposits are not a good alternative but if you want to discipline your savings then this disadvantage may work to your benefit.

It must be noted that he interest rate that you earn on recurring deposit is much lower that regular fixed deposit schemes, since your deposits are being made in small installments and not as a lump sum amount.

It is not possible in the case of recurring deposits to be able to change your deposit amount, regardless of your financial situation at the moment. 

When you have a fixed amount for investment each month, then the chances of extra or less funds for the deposit should be discouraged from opting for this product.

Systematic Investment Plans - Why Invest

In the information age, many of us develop our own set of beliefs and judgement which is good but it is vital to recognize whether you are investing your money the right ways and this is where we must look at our investment options

Systematic Investment Plan or SIP is a form of investment that allows one to invest a certain amount of money at a regular interval. 

You can start by investing small amounts of money in weekly, monthly or in quarterly basis instead of investing at one go in a year.

It can be viewed as a method of investing a fixed sum, regularly, in a mutual fund scheme and lets one to buy units on a given date each month, so that one can implement a saving plan for themselves. 

When investing in SIP one does not need to time the market which makes it different from investing in the stock market.

It allows you to invest in a mutual fund by making smaller periodic investments in place of a one-time investment.

You can invest in an mutual fund without changing your other financial liabilities which involves rupee cost averaging and compounding to better appreciate the working of SIPs.
It has brought mutual funds to the common man as it enables even those with tight budgets to invest a specific amount on a regular basis.

While making small investments through SIP  it enables investors to get into the habit of saving and over the years, it can really add up and give you handsome returns. 

A monthly SIP would grow in 10 years, 30 years and 40 years depending on the time period you wish to invest.

SIPs reduces the chance of investing at the wrong time and then trying to recover after a wrong investment decision. 

The true benefit of an SIP is derived by investing at lower levels. 

One must remember that the rule of making your money work for you is to stay focused, invest regularly and maintain discipline in your investing pattern.

 A small amount set aside every month will not affect your monthly disposable income as it is easier to part with a few hundreds every month, rather than set aside a large sum for investing all at once.

It is said that one must start investing your hard earned money at an early age if you want to attain the benefits of compounding.

The effect of compounding an be gauged from the fact that the longer the compounding period, the higher the returns.

Instead of investing a specific amount each year, suppose you invested some money after every five years, starting at the age of 35. 

When it comes to rupee cost averaging you will find that when you invest the same amount in a fund at regular intervals over time, you buy more units when the price is lower and this would reduce your average cost per share over time. 

Rupee cost averaging can make a difference if you follow a long-term investment approach, as it can reduce the risks of investing in volatile markets.

Those who invest through SIPs have to be present during both the highs and the lows of the market and your average cost of investing comes down since you will go through all the phases of the market.

It is a very convenient way of investing as one can submit cheques along with the filled up enrollment form. 

There are no entry or exit loads on SIP investments although capital gains, wherever applicable, are taxed wherever applicable.

It works on the principle of regular investments and is similar to a recurring deposit where you put in a small amount every month. 

The total amount invested, thus remains the same when you will be 60, but your need to look at the fund value and this is where the advantage of compounding that is present in the early years makes a huge difference.

The mutual fund will deposit the cheques on the requested date and credit the units to your account and will send the confirmation when it is done.

Remember, there is more than just a return while selecting a mutual fund scheme that works for your portfolio.

Real Estate Investment Trusts - How They Work

One of the fastest growing sectors in India is real estate, with huge prospects in major sectors like housing, commercial, hospitality, manufacturing, retail etc.

Buying a flat or plot of land is the best decision among the investment options and the risk is very low because the rate of property increases within months.

Real Estate Investment Trusts are a good investment option with efforts being made to make these tax-efficient for investors.

 The real estate sector in India has been lucrative for savvy investors over the last decade, but it has not been without accompanying uncertainties.

 It will open up a platform that will allow all kinds of investors  to make safe and rewarding investments into the Indian real estate market.

The best thing about REIT is that investors can start with as small a sum as is required to secure units in exchange.

The REIT platform has already been approved by the Securities and Exchange Board of India (SEBI) and like mutual funds, it will get the money from all investors across the country.

 The money collected from the REIT funds will then be invested in commercial properties that are used to generate income.

It will be registered by an IPO or initial public offering. REIT units and will have to get listed with exchanges and traded as securities with the minimum asset sizes to be invested.

The investors here would have the choice to be able to buy the units from either primary and/or the secondary markets.

It can be used to generate funds from a lot of investors to directly invest in profitable real estate properties like offices, residential units, hotels, shopping centers, warehouses and more.

All trusts with REIT will be listed with stock exchanges as they would be structured like trusts and all assets will be held with independent trustees for unit holders or investors.

They have defined duties which typically involve ensuring compliance and adherence to all applicable laws that protect the rights of the investors.

The objective is to provide the investors with the dividends that are generated from the capital gains accruing from the sale of the commercial assets.

The trust distributes  the income among its investors by dividends, besides the minimum entry level, a REIT is supposed to provide diversified and safe investment opportunities with reduced risks, and under a professional management to ensure the maximum return on investments.

REIT will showcase the full valuation on a yearly basis and will also update it on a half-yearly basis

According to the guidelines, they will have to diversify and invest in a minimum of two projects with the highest asset value in a single project

More than half of the assets will have to be invested into revenue-generating and completed projects to lower the risk of investment.

The remaining part that include properties like under construction projects, equity shares of the listed properties, mortgage based securities, equity shares that derive a minimum amount of income from Government securities , money market instruments, cash equivalents and real estate activities.

 However, the real estate regulations in place have not had the desired effect due to the market conditions in the country as yet.

The exemption from tax on the distribution of dividends would also make it a much more attractive option for investors.

According to a recent report , commercial properties in India that are investment opportunities are of great value across the top cities.

Investing in REIT can also be compared to other forms of investment like investing in gold bonds.

The Indian property market is now almost stabilized and it is the right time to buy self-owned homes and while it is better to wait and watch, the market cannot be accurately predicted at the best of times.

At the end of the day, these are investment instruments and not a means to acquire actual property which is always high on the wish-list.

A budget that clearly favors purchase decisions for first- time home buyers and is a step closer to make home ownership a reality.

Post office monthly income account schemes

The Post Office Monthly Income Scheme is a scheme available to investors which gives you a guaranteed return on your investment.

It is a popular scheme with investors are rewarded with assured returns every month on their deposit and is one of the most beneficial investment options that can be procured as it offers returns, ensures that the capital invested is intact and also provides a fixed income every month. 

This scheme is provided by the Indian Postal Service and is administered by the Finance Ministry of India, making this one of the most secure options to invest in. 

Anyone who wants to generate a monthly income can open this account and then get an assured monthly income.

There are many ways to invest and you can lend money to someone to use it for a specific period of time and this will come back with an interest or you can also invest in stocks.

You get interest per year, which is payable on per month basis and you will get the interest each month from the date of making the investment, not from start of the month.

If you do not withdraw the amount for some month, it would not earn any interest and just lie there in the account.

This post office saving scheme does not come under sec 80C so there is no tax-exemption for the amount you invest in this, and interest income is taxable, but there is no TDS cut in this scheme.

You can deposit the money with cash, demand draft or local cheque and once you open a monthly income scheme account, you will be issued a scheme certificate and a passbook to record the transactions against the scheme. 

The maturity period of this scheme is for a specific period of times, you will be eligible for a bonus if you retain your scheme foe 6 years and your overall return including this bonus will be higher although there is a limit on the amount you can invest in the scheme.

You can have any number of accounts, but within the overall upper limit and you do not need to take your money out after maturity, you can leave the money in the account, but then it would earn the interest equal to saving bank account for next 2 years only.

You get withdraw from the income amount by directly going to the Post-office but you need to check if you want the income in your saving bank account. 

You need to confirm that you can provide ECS information at the time of opening the account and get the interest amount created in your Bank account.

Even though the maturity period for the scheme is fixed, there is an option to break it and take your money out.

 You can take your money only after 1 year and have to pay a penalty for early withdrawal which is as follows

If you break it within 1-3 yrs : 2% penalty on Deposit amount

If you break it after 3 yrs : 1% penalty on Deposit amount

A minor above age 10 years  can open an account on his/her own name directly, there is a limit for the amount invested by the guardian and it would not be included with guardian limi.

If you are a non-resident Indian / HUF then you  cannot open the Account.

The interest not withdrawn does not carry any interest.

You account can be transferred  from one post office to any Post office in India free of cost.

The amount deposited that is invested is exempt from Wealth Tax.

One of the benefits of having these schemes you as an investor, have the option to pick one that is most suited to their income and other requirements.

 Most individuals would prefer opting for those investment schemes that are relatively risk free, while offering guaranteed returns and although post office schemes are not very risky by nature do not offer high returns, whatever offered is substantial enough for applicants to invest high amounts in.

Options Trading - The Basics

Options trading is one of the instruments of investing that gives an investor a choice when it comes to making maximum profits with minimum risk.

They can be used for a variety of reasons depending on your trading goals and styles, it may be a better trading choice than owing a stock.

An option is defined as a contract that gives the buyer the right to buy or sell an asset at a specific price on or before a certain date.

Option is one of the most diversified trading instruments available and can be traded with various financial instruments like stocks, stock indexes, currencies, futures, exchange traded fund, commodities and bonds.

It is a derivative as its value is derived from something else and in the case of an index option, its value is based on the index.

It is a security and constitutes a binding contract with strictly defined terms and properties and is a valid trading instrument, whereby the holder has the right, but no obligation to buy or sell the stock or financial instrument.

The buyer will pay some price to get this right called premium and the seller will have to buy or sell the underlying stock, if the owner of option decides to exercise their right.

- Option type as CALL or PUTStrike priceOption type as call or put Expiry date An option that gives you the RIGHT  to BUY the underlying stock/instrument at agreed price called strike price, before agreed date called expiry date.

The person who is selling you the call option carries the obligation to deliver you the instrument, if you decide to exercise your right.

An option allows you to sell the stock at agreed price called strike price, before agreed date called the expiry date.

The person who is selling you the put option carries the obligation to take the delivery from you of the stock, if you decide to exercise your right.

When you trade with stock options is more than simple stock is the leverage involved as options enable you to control the shares of a specific stock without tying a large amount of capital in your trading account.

The amount of capital that you are paying is a comparatively small amount comparing to the cost of buying the same amount of stocks.

It gives one the ability to invest a smaller amount of capital and control the stock and give the option trader the flexibility.

You can magnify profit when the stock moves in your favor.

One can make money based on a relatively small movement in the stock.

Certain income producing option strategies enable you to generate a monthly passive source of income and one of the most used strategies to generate passive income is to write covered calls.

The trader who wrote the covered calls may be forced to sell his stock when the options is exercised so use this only if you are willing to depart with the stock that you own.

There are various options strategies that give the options trader the ability to make money from all market directions with limited risk exposure and potentially unlimited profit.

One can buy call options when the market is bullish, buying put options when the market is bearish and entering into various credit spread strategies to earn profit when the market is range bound.


Stock options can be used as an instrument to hedge against various risk exposure of a stock holder and as insurance to protect your stock portfolio from any adverse move in the market.

Unlike stock where you can hold on to it for many years or even passes on to your children, all options have an expiration date and there is nothing you can do to stop the options from expiring.

 The rate of time value increases over time when the options get closer to the expiration dates so be sure to watch over your open options position and not to let it expired worthless.

If you hold onto a trade and are out of money at expiration date, then you may lose that what you invested in the options.


Leverage works both ways as it can help you earn profit in shorter time frame and can break your account in half that time just as quickly.

The risks of leverage is present when one is involved with calls or puts or entering into any unlimited risk option strategies.

Options trading is a risky venture and it has substantial risk and reward involved and you need to trust your instincts and do what you feel is the best for you so that you achieve your financial goals without any losses.

Unit Link Insurance Plans - Why Invest

A Unit Linked Insurance Plan or ULIP, is a financial product that is acts both a an investment as well as insurance.

It is one of the best investment options in India and is more reliable when it comes to wealth creation as it invests in debt and equities markets with the fluctuation is counted by the net asset value (NAV).

In such a plan the premium amount, after deduction of charges, is invested into funds of your choice and the fund could be equity based, debt based etc.

The performance of the fund depend on the market although you can switch between the funds.

They are similar to those of mutual funds except that unit linked insurance plans are investment products that comes with insurance benefits.

It can be viewed as a long term investment plan, which provides risk cover for the policy holder along with investment options to invest in any number of qualified investments such as stocks, bonds or mutual funds.
 
 You pay the premium just like for an insurance policy unlike the insurance policy the premium is not just for insurance but also for investment.

After deducting some charges some in beginning, some during the policy term and for insurance ,the amount left gets invested into mutual fund of your choice. have different funds with different risk-return profile.

One may have an allocation of 80-20 to equity and debt ratio and you can switch between the funds 4 free switches in most of the cases , there after some nominal fees.

 These charges are deducted from the premium paid by the client and they account for the initial expenses incurred by the company in issuing the policy.

 These charges are deducted on a monthly basis to recover the expenses incurred by the insurer on servicing and maintaining the life insurance policy like paperwork and it could be throughout the policy term or vary at a pre determined rate.

 A part of the premium from the selected fund , is invested either in equities or debt, bonds, money market instruments etc or a combination of these and managing these investments incurs a fund management charge (FMC).

The FMC varies from fund to fund even within the same insurance company depending on the assets, a fund with higher equity component will have a higher FMC.

 These charges are deducted for managing the funds before arriving at the Net Asset Value (NAV) and the fee is charged as a percentage of funds under management.

 Mortality expenses are charged for providing a life cover to the individual and are deducted on a monthly basis.

The expenses vary with the age and either the sum assured or the sum at risk which is the difference between sum assured and fund value of the insurance policy of an individual.

It is done by including your age, mortality tables used by the industry and also the company’s claim experience though the mortality charges should be the same, some insurers levy differential rates.

 These charges are deducted for premature withdrawal partial or full with guidelines on the maximum surrender charges that can be levied by life companies.

The charges when you switch between funds ex  from Equity to debt with a limited number of switches typically 4 are allowed without any charge.

 In ULIP which offer minimum guaranteed amount or NAV, there is cost of guarantee which is deducted from the total units.

 There are online plans with no charges for premium allocation, policy administration and discontinuance except a percentage of fund management charge per annum and mortality charge from the fund value of customer in order to provide the life cover.

This makes them lower in terms of cost than equity mutual funds and make them attractive with the tax efficient transfer from debt to equity, and vice versa.

The  mortality charges go down as the fund value goes up and in case of death in the initial years of the policy, when the fund value is less than the sum assured, the insurer will pay the agreed sum to the nominee.

When the time the fund’s value goes higher than the sum assured, the death benefit will be the accumulated amount in the fund.

The mortality charge keeps reducing year after year as the sum at risk reduces which is the difference between the accumulated fund value and sum assured under the policy.

There are many nit-linked insurance products to suit your goals for your retirement planning, for your health and marriage or for investment purposes.

These plans are wealth plans that are usually of shorter time frame and focus on getting higher returns to create a good maturity amount.

Child plans are for securing child’s financial future as the money is invested to ensure that the child’s future financial goals like education are secured. Along with it, death benefit in most child plan is very comprehensive so that child’s future is not compromised.

Pension plans focus on the creating of a corpus amount so that the life insured gets regular pension after retirement.

Fixed Maturity Plans - Why Invest

Fixed maturity plans are close ended debt schemes that are open for investment for a few days during launch and then closed until maturity. 

They come with a pre determined tenure and are usually offered for tenures varying from 30 days to five years and the most commonly offered tenures are 30 days, 180 days, 370 days and 395 days. 

They invest in highly rated securities, certificate of deposits, money market instruments, bonds and government securities

The basic objective is to seek consistent returns over a fixed period and aiming to protect investors against market fluctuations. 


They are  similar to bank fixed deposits in that the money invested is locked in for the tenure of the scheme and can be described as debt funds that invest in government securities and company debt.

They usually have no equity component, unless you invest in one that chooses to have a limited equity component.

They try to protect investors against market fluctuations and offer flexibility to their fund managers and let them plan on their exact investments at the start.

This allows investors to know and be informed about the approximate returns they can get by investing in these plans.

They are ideal for all investors wanting benefits across different parameters, such as lower market risk and tax efficient returns.

Investors can choose the plan that match their investment requirements and also their cash flow requirements.

You can invest in fixed income instruments like certificate of deposits , commercial papers , other money market instruments, corporate bonds, non-convertible debentures of reputed companies, or in securities issued by the government, maturing in line with the time limit of the scheme.

Since they are closed ended schemes, an investor can invest only during the initial offer period of the scheme, and redeem only at the time of maturity of the series under the scheme.

However, unit holders holding units in demat mode, can exit by selling their units on the stock exchange where units of the scheme are listed.

They are least exposed to interest rate risk, as the fund holds instruments till maturity getting a fixed rate of return.

One can invest in highly rated credit instruments with maturity profiles of the invested securities in line with the maturity of the scheme, so there is low credit risk, with minimal liquidity risk involved.

 It works as asset allocation tools, that endeavor to provide the investor with stable returns for the period of investment.

They are also better as a tax saving instrument and if it is longer than a year, investors may choose to avail indexation benefits to check their taxable liability against prevalent inflation for the period.

When there are high prevailing rates, and with other asset classes not adequately performing,investors can invest in fixed maturity plans which lock in returns by investing in instruments maturing on or before the maturity of the scheme.

They can make use of prevailing high yields, without assuming the volatility risk of investing in a time duration product.

However they are not allowed to provide indicative yields to investors while in fixed deposits the interest rates are known in advance.

If you go for the dividend option ,then they are subject to dividend distribution tax  plus applicable surcharge and cess, which is paid by the fund and is tax free for investors.

If investors opt for the growth option, they are subject to capital gains tax and in case of a growth option with a maturity of more than one year, an individual can use the benefit of long term capital gains where the tax rate is 10% without indexation benefits or 20% with indexation benefits.

Those plans with tenure of less than a year, the dividend option is more appropriate as it results in lower tax incidence compared to the growth option, which would be taxed at the individual income tax slab rates.

It also offer double indexation benefit, which comes into play when the scheme purchase is made in one financial year and the maturity of the scheme is after two financial years.

Indexation for tax purposes allows returns generated to be adjusted for inflation so that the investors are taxed only on the real returns.

Thus, fixed maturity plans maybe riskier but compared with fixed deposits they offer better returns to the investor.