Recurring Deposit (RD) is a deposit scheme where the investor commits to depositing a fixed sum every month for a chosen tenure (6 months to 10 years) at a pre-agreed interest rate. Think of it as a SIP into a fixed deposit.
How it works: Fixed monthly instalment auto-debited from your savings account. Each instalment earns interest from its credit date to the RD maturity date. Interest is compounded quarterly at most banks. Premature closure attracts a 0.50-1.00% penalty.
Example: Rs 10,000 per month for 5 years at 7.0% (quarterly compounding). Total invested = Rs 6,00,000; maturity value approximately Rs 7,20,800. Interest of Rs 1,20,800 is taxed at slab.
When to use: Forced-savings habit for cash-flow-positive earners who lack the discipline for a self-directed SIP; building a short-term goal corpus (vacation, gadget, vehicle down-payment) with zero market risk.
When NOT to use: Long-horizon goals — equity SIPs historically deliver materially higher real returns over 7+ years. RDs in the 30% slab struggle to beat inflation post-tax.
Caveat: RD interest is fully taxable at slab; TDS applies above Rs 40,000/year aggregate. Verify current TDS thresholds before relying on net cash flow.