Recurring Deposit (RD) is a saving instrument used by individuals who are new to the world of investments and savings. This investment mechanism allows investors to make small deposits at regular intervals and earn returns on them. Thus this enables individuals to save penny by penny instead of depositing a lump sum amount in a go. Also, it is suitable for risk-averse investors as it provides higher returns than a savings account and has lower risks. One can say that an RD works as same as the FC, but comes with higher flexibility, making it more preferable.
Though recurring deposits seem to be a good investment option, it is essential to assess the optimal combination of the instalments, interest rates, and the tenure of the deposit that would fetch optimal returns. RD Calculator is one such systematically designed tool that can be used to decide the right blend. The RD calculator by Scripbox is one such measure that can help one plan one’s investments better. Individuals can use an RD calculator to know about the rates of interest and the value they would gain from their savings.
Here are a few tips to use the RD Calculator in the right way online:
- Choosing and using the RD calculator: One must use an online calculator from an authentic source. Individuals looking for the help of a calculator should research online for the best rd calculator such as the one by Scripbox or any other financial institution. One the investor logs in to the official website of the calculator provider, he needs to input the amount he wishes to keep aside as savings each month. The next step is to choose the duration till which the investor wishes to invest in the RD. Note that senior citizens earn a higher return on their investments than ordinary investors. Thus it is important to enter the details about your senior citizenship to get the accurate output. Once this necessary information is entered, click on calculate. The calculator user gets the interest he or she might earn on the maturity of the deposit as the output.
- Calculation of maturity amount: The maturity amount that the investors get at the end of their duration is the total of the principal amount they deposit and the interest they earn over the period. Here the interest is compounded quarterly on the investment amount. This calculation of the maturity amount can be a little complicated for certain individuals. RD calculator comes to the rescue of such investors. The calculator helps them compute the maturity amount they ould receive on maturity. Thus it is a good idea to use an rd calculator whenever one needs to examine their prospective returns on the investments.
- Duration of the investments or the maximum and minimum tenures: Investors seeking to invest in an RD have a huge variety of options to choose from concerning the tenure of their investments. They can choose the investment tenures from 6 months to a maximum of 10 years. In case the investor is a Non-Resident Indian (NRI), the maximum tenure is as much as 12 years.
- Minimum monthly instalments: Recurring deposits are rather a very flexible mode of investments with relatively less risk and potentially higher returns. However, one limitation of this is that several banks and financial institutions have prespecified a minimum amount of monthly instalments that the investors are required to deposit in their banks’ recurring deposit accounts regularly. It is vital to note that this amount should be specified while using the calculator.
- Calculation of the TDS: One must remember that the RD calculator does not consider the TDS while presenting the output. Therefore, investors should calculate TDS manually. This is because of the RBI norms which do specify that recurring deposits are liable for TDS, but do not specify its implementation across various organizations.
- Age of the investor: The rate of interest available on a recurring deposit depends largely on the age of the investor. The majority of the banks provide a higher interest rate to senior citizens. This higher interest rate may range between 0.50% to 0.75% in addition to the ordinary interest rates for other investors. Thus, one must verify the rate of interest applicable before entering the figures in the calculator.
- How is the maturity amount calculated: While we can escape the complex calculations by using this online tool, it is important to understand the formula behind it for a better understanding of the process.
The formula used when compounding is done quarterly in a recurring deposit is:
A = P*(1+R/N)^(Nt)
Here, ‘A’ stands for the maturity amount in INR that will be earned at the end of the tenure, ‘P’ denotes the recurring amount that shall be deposited regularly in the RD, expressed in INR, ‘N’ denotes the frequency of compounding, ‘R’ is the interest rate applicable in percentage terms of the recurring deposit, and ‘t’ is the tenure for which the deposit is to be made.
The investor to understand this formula before using an RD calculator as this must help in understanding the output along with the role of each parameter to be inputted.