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A Post-Office Recurring Deposit Account (RDA) is akin to a Recurring Deposit in a bank, where you invest a fixed amount on a monthly basis. The deposit has a fixed tenure, and the scheme is a powerful tool for regular savings. As the name says, the RDA is a systematic way of saving money. The scheme is meant for investors who want to deposit a fixed amount regularly, in order to get a tidy sum after five years. If you invest Rs 10 every month, you will get back Rs 758.53 after 5 years.
INVESTMENT OBJECTIVES
Is Post-Office RDA suitable for an increase in my investment?
Recurring Deposits accumulate money at a fixed rate of interest (currently 9.5 per cent per annum), compounded quarterly, and your investment appreciates in five years. But it does not offer capital appreciation in the sense that you do not buy a recurring deposit at a lower price and sell at a higher price.
Is Post-Office RDA suitable for regular income?
No, a recurring deposit is a tool for long-term savings, and is not meant for earning regular income. In fact, it works in the contrary way in the sense that you regularly pay up the monthly instalments and get a lump sum after 5 years.
To what extent does the Post-Office RDA protect me against inflation?
Since a RDA offers a fixed rate of return, it does not provide adequate safeguards against inflation if it crosses 9.5 per cent in a year. Therefore, the lower the gap between the interest rate on a RDA and the rate of inflation, the lower is your real rate of return from it.
Can I borrow against Post-Office RDA?
No, the borrowing facility is not available in the post office RDA scheme.
RISK CONSIDERATIONS
How assured can I be of getting my full investment back?
The post office RDA scheme has the backing of the Government of India. Hence, the principal amount is assured. This is a safe investment, and a good opportunity for long-term savings.
How assured is my income?
Interest income is assured at the prescribed rate of interest. As mentioned earlier, this scheme has the backing of the Government of India, and is deemed to be risk-free.
Are there any risks unique to Post office RDA?
No, the post office RDA is a very safe investment channel, and there are no risks associated with your investment in it. However, high inflation is a cause of concern as this diminishes the real rate of return on your post office RDA.
Is the Post office RDA rated for credit quality?
No, the RDA scheme does not require any commercial rating as it has the backing of the Government of India. It is deemed to be risk-free.
BUYING, SELLING, AND HOLDING
How do I buy a Post Office Recuuring Deposit Account?
A post-office RDA can be opened at any post office in the country by filling up the appropriate forms.
What is the minimum investment and range of investment in RDA?
The minimum investment in a post-office RDA is Rs 10. There is no prescribed upper limit on your investment. The advantage with post-office deposits is that it offers a fixed rate of return at 9.5 per cent while banks constantly change their recurring deposit rates depending on their demand supply position. The only disadvantage is that you will have to visit the post office every month whereas in the case of banks, the amount will be automatically deducted from your account.
What is the duration of Post Office RDA?
The post-office RDA scheme has a tenure of five years. This can be extended for a further five years if you so desire.
Can RDA be sold in the secondary market?
No, there are no provisions for a post office RDA to be traded in the secondary market. It is also not transferable.
What is the liquidity of RDA?
Only one withdrawal is allowed after one year of opening a post-office RDA. You can withdraw upto half the balance lying to your credit. On premature closure (after one year), interest is payable as per the rate for the Post Office Savings Bank Account.
How is the market value of Post Office RDA determined?
Since a recurring deposit is not traded in the secondary market, it does not have a market value. Investors can get regular updates from their post office on the accumulated sum.
What is the mode of holding of RDA?
An RDA can be opened by an individual adult as a single person account, two adults in a joint mode, or by a guardian on behalf of the minor who has attained the age of 10 years in his own name. RDA can also be held by a HUF, Trust, regimental fund, welfare fund, company, banking company, corporation, association, institution, registered society, or local authority. Accounts can also be opened in the name of a minor or a person of unsound mind.
TAX IMPLICATIONS
Although the investment in post-office RDA is itself not subject to tax benefits, interest income upto Rs 9,000 per annum is exempt from tax under Section 80L of the Income Tax Act, 1961.
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