How will you benefit from investing early in mutual funds?

To make a decent corpus after a certain period of time, small yet regular contributions are the key. If you contribute a small amount but for a long time period, the art of compounding helps to build a neat amount. Post office provides you one such avenue. The returns are guaranteed by the government guaranteed. If you invest only Rs 300 per day, this post office deposit scheme will give you almost Rs 15 lakh after 10 years.

Small investment

If one considers investing in one of the best deposit schemes of the post office, i.e. recurring deposit, it will deliver this guaranteed result. Let us consider only Rs 300 per day and it would give Rs 15 lakh at the end of the tenure.

Currently post office deposit scheme gives 5.8% yearly returns.

The math

If a person invests Rs 300 per day, it amounts Rs 9,000 per month and Rs 1,08,000 per year. If he/she invests this amount for a period of 10 years, then the person’s nominal investment stands at Rs 10.8 lakh.

With 5.8% interest rate the return would be around Rs 14.65 lakh.

The central government fixes the interest rates of its small savings schemes every quarter. The compound interest is calculated every quarter, making it highly effective as it helps investors generate earnings.

It gives you one of the highest guaranteed returns in the market.

Things you need to keep in mind

You need to regularly deposit money on a monthly basis for 120 months. If by chance you skip a month to miss a payment, then you have to pay a penalty of 1% every month. If you miss four months of installments in a row, the account will be closed automatically.

However, you can still retrieve the account within two months from the date of default, but if you miss the window, it will be permanently closed.

This RD scheme allows applicants to withdraw up to 50% of the deposit balance at any time after a year of opening the account.

Expert view

The tax benefit of post office recurring deposit scheme and secure and safest return make this is a good medium term investment product. If you are a late starter, don’t hesitate to invest in RD as it would offer you good and secure returns.

“RD is safest, secure and government guaranteed scheme. I always advise my clients to go with RD and then with PPF. So, if you start late it will give you a regular income, and if you start early then RD will give you a decent return,” said Nilotpal Banerjee, a financial advisor based in Kolkata.