Primer. Flex your recurring deposit

Investment is not just about prudence; it is also about discipline — setting aside money and investing on a regular basis. If you are a conservative investor and prefer to park your surplus systematically in fixed return instruments, recurring deposit (RD) is a good vehicle. The minimum investment is as low as ₹100. The rate of interest on the RD scheme is comparable to that of fixed deposit schemes. Most banks allow you to borrow against the balance in your RD at a concessional rate. To make RDs more attractive, banks offer flexi-RD schemes too.

Unlike the traditional RD scheme, the flexi-RD scheme allows you the flexibility to invest variable sums of money every month.

But the features of the scheme vary across banks. Bank of India’s Star-Flexi RD account, for instance, stipulates you to choose a core instalment amount at the time of opening the account. And the interest on the core instalment is fixed at the rate applicable at the time of opening. If in a particular month you managed to save more or got a hefty bonus pay out, you can invest a higher sum in the RD scheme.

The interest rate on the additional amount that you invest will earn interest at the rate applicable at that point in time. Consider this.

You sign up for a two-year RD scheme for a core instalment of ₹1,000 and the rate interest at the time of opening the account is 9 per cent.

Say, one year later, you get a bonus and want to invest a portion of the surplus in the RD scheme and hence decide to invest ₹10,000 that month.

Assuming that the rates moved downwards in the last year and the rate applicable on the day of investment is 8 per cent, your interest amount will be calculated thus :

On the core instalment of ₹1,000 each month, you will earn an interest of 9 per cent. The interest rate on the flexi instalment portion (₹9,000) will be 8 per cent.

The maximum monthly instalment you can make under the flexi instalment scheme varies across across banks. Some schemes such as Bank of India’s Flexi Scheme does not impose any limit.

Likewise, ICICI Bank’s iWish Scheme too allows you to invest any sum every month. But that is not the case with others, such as PNB’s Swechha Jama Yojana. The maximum monthly investment is capped at 10 times the core investment. For instance, if your core monthly investment is ₹2,000, you cannot invest more than ₹20,000 in any given month. Similarly, with SBI’s Flexi Deposit scheme, you can invest a maximum of only ₹50,000 in any given year.

The minimum investment in this scheme is ₹5,000. However, the frequency of investment is flexible; you can invest multiple times in a month and at any time.

Most banks charge a penalty for delayed payment of core instalment. In the case of Bank of India’s Star-Flexi scheme, delayed payment of core instalment will attract a penalty of ₹1.5 for every ₹100 invested in schemes with maturity of up to five years.

If you fail to meet the minimum investment criteria of ₹5,000 under SBI’s Flexible Deposit Scheme, you will be charged a penalty of ₹50 per financial year.

Secondly, while flexi RD may be a good route to systematic investing, liquidity is a shortcoming. You will have to incur a penalty for premature closing and this varies across banks.

For instance, if you want to withdraw the amount in your Star-Flexi prematurely — within three months from the date of investment — you will not get any interest on both the core and flexi instalments.

Under ICICI Bank’s iWish Scheme, interest will be paid to you at the rate applicable for the duration of the deposit.

SBI will deduct 0.5 per cent from the interest rate applicable for the period for which the amount remained with the Bank, as penalty.

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