My First Lesson in Financial Education : Recurring Deposit & Fixed Deposit

From the past one week, I have been really trying to understand the whole 'don't-work-for-money, make-money' concept, which I read in Rich Dad, Poor Dad by Robert Kiyosaki. In the book, there was a mention of always buying 'income-generating assets'.

So, one day I asked my father for some financial education. He seems to be the more masculine person out of my parents atleast more finance literate out of the two. But, I'm going to make him read this blog post for English as well.

He gave me some tips jo mere palle hi nahin padi (which I could not understand).
So, I asked him some questions which were regarding this blog post that I read about how to build assets with little money.

Recurring Deposit: The First Asset

There were many questions regarding Recurring Deposit and Fixed Deposit. He told me something according to his own knowledge and experience. But, some unanswered questions were still left in my mind. So, I googled and landed on this definition and description of Recurring Deposit. Go ahead and read, then only progressing further will be fruitful or else Over-Head-Transmission-Protocol (OHTP) will occur. What is this? Comment or mail me. ;)

Go ahead!! I'm waiting.

So,

The blog post says that Recurring Deposit earn interest as high as Fixed Deposits which got me to think about the difference between Recurring Deposit and Fixed Deposit.

And this was the first question of my mind.

Difference between Recurring Deposit and Fixed Deposit.

To solve this I went through the definition of Fixed Deposit.

Number one difference is Fixed Deposit works for surplus lump sum amount of money however, Recurring Deposit the investment is deposited every month like, Monthly Installments. Whereas RD and FD has almost the same rate of Interests of 8-9%, the interest credited on Fixed Deposit depends on the depositor choice, (either monthly or quarterly) under the Traditional Scheme and quarterly under the Reinvestment Scheme, whereas the interest credited in Recurring Deposit is compounded on a quarterly basis.

TDS (Tax deducted at Source) on the Interest earned is applicable in FD but not in RD. Though, you have to include that amount in your Income Tax returns in case of RD.

There is a term called Premature Withdrawal. RD or FD has some time limit to them. If you withdraw money before that time period, then it is called premature withdrawal. In case of FD, it ias also called Breaking of FD. The banks charge penalties in this case. This blog on Premature Withdrawal will help you more.

To counter this problem, RD gives an overdraft or loan facility pledging the balance in RD account as collateral. I could not understand this statement. If anyone knows about this, please help me. Up to 90% loan/overdraft is available against the balance in your RD account.

Key Take Aways.

Here are my key take aways:

Financial Education is important.
RD is best for those who want to invest regularly and FD is for lump sums.
RD has better alternative to Premature Withdrawal.
RD has tax benefit for lower interest earned.

This was my first lesson in Financial Education.
I have embarked on a journey of Financial Freedom and I need your help. Ask me questions or give me links to read more. Anything will help me. Please share your thoughts in the comment section.

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Lv ol...
God Bless...
Keep Learning...
\m/

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