Life....Savings

I have been researching on recurring deposits for the past two days. I feel strongly for it, one because it is a very safe and sober investment because you can either do it in banks or in post offices. The differentiator is, banks give you the flexibility for period of investment ( starting from 6 months to a max of 120 months depending on which bank) and they give you the benefit of floating interest (if bank interest rates increase you are given the benefit of it) whereas in post offices you get a flat interest rate 7.5% and you will have to invest for a min period of 5 years. Another advantage of this scheme is you can start with minimum sum of Rs. 500 with banks and as low as Rs 10 with post offices as these are aimed at low income group class.

I am aware there are several other schemes which can fetch you higher interest and returns but one point I have noticed is they are all long term investments. Also they lock up your cash for the tenure of the scheme. You can also argue that share market can give you instant big ticket returns but again that also is a gamble and you need to invest not only money but also your time to follow the market and make the kill at the right time. I have spoken to many of my friends in the past who are in finance, though most of them tried selling me some SIP (Sytematic Investment plan) or the other, one good friend actually initiated me into thinking on these lines. All he said was if you are thinking of making a corpus for yourself and retire in style, then invest in FDs. Be disciplined and judicious while investing and try as hard not to break the chain come what may. He proposed one should make atleast a Rs. 10,000 FD every month. Yes for a start, even I was taken aback, but I then started my research on something small which later as I progress can lead me into a position where I can save at the proposed rate.

Now, you save say Rs. 1000 a month for a period of 12 months, you will get a return of Rs. 13,200 @ 10% interest. Say you put Rs. 10,000 in an FD and balance Rs. 3,000 you use it to pay monthly installments for the next three months of your new RD.Keep the term of the fixed deposit short say 12 months and also keep the amount small say Rs. 10,000. Its a rare case that one will require money in really large amounts on emergency.  This money will come into play only beyond our regular safeguards. You can always break a FD early, only thing is that you lose on your interest. If the bank says you will get 10% interest at the end of 12 months, actually they would have divided the interest  over the 12 month period. So if break the FD within 3 months you will end up with no interest, from 3-6 months u might get 4% and so on. This actually I got to know when HDFC was selling a similar scheme.

I have mentioned "regular safegaurds" in the previous paragraph, now what are those - 

1. Your employer provides you with medical coverage for your direct dependants

a. medical insurance with cashless card facility

b. medical reimbursement upto Rs. 15,000 p.a.

2. Your investments for individual or group Life (health) insurance for your family that you might have taken to avail tax exemptions under Sec.80.C

This post is aimed at basically saving some money for any future uncertainities be it health, children's education, retirement etc. I have mentioned events that are long term. So when you start to save, don't plan how to spend this kitty.  Remember the hero honda tag line few years back "Fill it, Shut it, Forget it", is apt for wrapping this post. Adios