Invest in Credit Risk Mutual Fund or not?
What are Credit Risk Funds? Why investors stay away from this investment? How do these funds work? How much is the risk in this investment?
Whenever we invest, we hope that our money is safe and we get guaranteed returns on it. Bank fixed deposits meet these two expectations. For Bank FDs, you need to deposit a lumpsum amount. But what if you cannot deposit the lumpsum amount? Arnav Pandya, founder of Moneyeduschool, says that RD account is a good option for such investors, in which you can deposit a small amount every month like an installment.
Where can I open RD account?
RD account can be opened with any bank or Post Office. You have to make a deposit every month in your recurring deposit account and there is no maximum limit on the deposit. An investment of minimum Rs 100 can also be done. Bank RD comes with a tenure of 6 months, 1 year, 5 years to 10 years. Although, Post offices only offer a 5-year Recurring Deposit Account. Right now, post office RD is paying the highest interest at 5.8% compared to the banks. TDS has also to be paid on the interest on recurring deposit.
5-year RD Account interest rate
Post Office: 5.8%
SBI: 5.4%
HDFC Bank: 5.3%
Interest Rate on 1 Year RD Account
SBI: 5.10%
HDFC Bank: 5.10%
Returns
Interest earned on RD is calculated by compound interest formula The interest rate at which you start investing is locked up till maturity. Suppose, you started investing in April 2021 at an interest of 5.3%. Now in the quarter of June 2021, the government decides to reduce the interest to 5% on this scheme. But, since you started investing at the rate of 5.3%, you will get 5.3% interest till maturity. Investors have to pay the tax on interest earned as per their tax slab. If interest is more than Rs 40,000, then banks will deduct TDS. Under the Income Tax Act, a deduction of Rs 1.5 lakh under Section 80C is available only on the post office RD account. Tax benefit is not available on bank RD accounts.
Who should opt for it?
According to personal finance expert Arnav Pandya, an RD account is only for those who want to invest a small amount every month and know how long should they keep the RD tenure as per the need. The interest earned on RD is not huge, but RD account protects your original investment and gives steady returns.