recurring deposits

Nurture Your Child’s Dream with a Click!

by Vinaya HS on June 27, 2015

in Finance

The following post is a sponsored post.

Being a parent is the toughest job in the world. Caring for children, nurturing their talent and helping them fulfill their true potential is the biggest responsibility that every parent must shoulder. Parenthood is not about taking one or two big decisions correctly. Rather, helping your child reach the pinnacle of success is all about making smart decision in a consistent manner.

Being a good parent is not about leading a perfect life. That is impossible. Rather, a responsible parent is one who plans for potential problems, and ensures his or her child is secure even in the worst case scenario. Let me tell you how one small decision that I took many years ago helped my child’s future.

I decided to open a Recurring Deposit – It was a small decision that I took on an impulse. It was my daughter’s 5th birthday and I wanted to gift her something that would help her in the long run. However, even I did not know how my decision would transform her life.

I decided to invest Rs. 3,000 per month in a recurring deposit, and planned to let it run for as long as possible. Now, a RD offers the same interest as a Term deposit. So, you don’t really lose out on interest despite opting to invest your money in a recurring manner instead of making a lump sum deposit.

You can choose your RD’s tenure depending on your requirements. Most banks offer RDs for 12, 24, 36, 60, and 120 months. I opted for the 120-month deposit and ended up investing a sum of Rs. 3.6 lakhs over a span of ten years. The biggest benefit of this option was that the monthly deduction did not pinch my pocket, and allowed me to spend on my family without any restrictions.

After ten years, I received a maturity amount of Rs. 5.74 lakhs. As my 15-year old daughter showed signs of academic brilliance from a very young age, I decided to use a part of the maturity amount to invest in savings & investment plans to secure my child’s education.

The returns that the RD had provided proved very beneficial when my daughter was about to seek admission in an engineering college. I lost my job and struggled for four long years before I become financially stable again. The combination of the RD’s maturity amount and the investment plan funded my daughter’s education despite the fact that I was not earning anything throughout her engineering degree.

My farsighted decision helped my daughter hone her skills and study abroad with a full scholarship. A small amount of Rs. 3,000 per month made all the difference between success and a devastating failure.

Therefore, you should start planning to nurture your child’s future at a very young age. Remember, compounding offers benefits only if you let the investment grow for a very long time. Combining a 10-year RD with a 5-year RD can help you save money for your child’s future without compromising on your immediate requirements.

Author Bio:

Rachita Kotian is an independent blogger and writing has been her passion for a long time. A literature major, she loves exploring the world of health, lifestyle, travel and finance. When she’s not writing, she’s most likely listening to music, cooking, surfing the web, or catching up on the latest flick.


iWish I Could Actually Create My iWish Account

by Vinaya HS on December 25, 2012

in Finance

Merry Christmas folks and as promised Capital Advisor is back!

So, having read all the PR about ICICI Bank’s iWish flexible Recurring Deposit product, I thought I’d go and setup an iWish account and goal for myself. Project terminated then and there because –

Image of Capital Advisor trying to create an iWish account

“We’re experiencing some delays setting up your account. Please try logging in again later.” I doubt if most users would go back and try again later. You certainly wouldn’t want to see a “We’re experiencing some delays in giving back your iWish goal money. Please try logging in again later.” when your iWish goal matures, would you?

But if you’re lucky enough to successfully get past the account creation stage, I think it’s a good way to save for purchases/expenses that you expect to make/incur within the next 6- to 12-months. But do note that interest rates offered jump-up significantly even in the space of a month (for example: 7.50% @ 12-months vs. 8.75% @ 13-months at the time of this writing). So, if you’re looking at a 12-month goal, it’s certainly advisable to make that a 13-month goal and earn that extra interest.

And taking a trip down memory lane, when I was at my first job and wished to buy everything under the sun (a bike, a mobile phone, an SLR, etc.), I’d simply hand over a random amount of cash each month to my mom and when I wanted to actually make the purchase the correct amount of cash would be put back in my hand. Simply the best bank in the world.

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Consider this chart:


This chart represents the ratio of my saving/investment in one particular financial instrument to my total income each month. On an average, approximately 15% of my total income each month is saved/invested in this one financial instrument. What’s worse though is the fact that I am locked into doing this for the next few years! It seemed like a great idea when I first started it — and to give due credit, it has enforced quite a bit of saving/investing discipline in me — but I realize now that it’s a financial white elephant to maintain.

In this day when your next month’s income isn’t guaranteed, pre-locking 15% of that isn’t a really clever idea. I’ve had to sit and figure out ways and means for continuing to make a deposit each month in the event of financial adversity. 14-months from now, I will at least have the option of a premature closure available and this is the worst case scenario that I need to plan for. Thankfully, that’s the only white elephant in my saving/investment portfolio.

A Recurring Deposit at the Post Office — that’s what I am talking about.

That’s also where this quote came from:

Don’t invest in a financial instrument unless you have the financial capacity to feed it. Examples: Life Insurance policies whose premiums run into tens of thousands of rupees, high-value multi-year Recurring Deposits, and such.

What financial white elephants do you have?


Asked and Answered: January, 2011

by Vinaya HS on January 28, 2011

in Finance

I sometimes receive queries over email from readers who are in a particular situation with respect to their personal finances and want to know what actions they ought to take in order to move ahead. Some of these queries are generic enough to apply for a broader audience. In the past, I’ve tried publishing these ad hoc in one way or the other, but would like to have a more organized approach moving forward. My plan is to collate these queries and my responses over a period of one month and publish them here.

Here’s what was asked and answered by Capital Advisor in January, 2011.

Query #1: Saving for higher education.

I want to save for the higher education of my 2 daughters aged 13 years and 11 years. I’m already investing Rs 5,000 per month in the Post Office Recurring Deposit since 1 year. I can set aside (at maximum) another 4,000 to 5,000 rupees per month. I am a single parent and cannot invest more that this. What should I do? Please advise.

Since you have started a Post Office RD for Rs 5,000 per month a year back and since the Post Office RD requires you to make monthly contributions for a period of 5 years, I’d suggest that you put the additional Rs 5,000 per month into what I’d call a buffer fund. Being a single parent, you could run into a financial situation (for whatever reason) where you’re unable to make the monthly contribution into the Post Office RD and that’s where the buffer fund would be quite handy.

First save up a 6 to 12-month buffer fund. This will cushion you against defaulting on the RD in the event of an economic hardship. Once you do that, you could consider investing the additional Rs 5,000 each month in a Moderate Allocation Fund with a great track record. I particularly like HDFC’s Prudence Fund (Growth option) — I have a SIP in D’s name.

Useful Reading: MorningStar Fund Investor — November, 2010.

Query #2: Building a contingency fund through high-returns investments.

I am looking for an investment scheme wherein I want to invest biweekly or monthly with a variable amount (say Rupees 2,000 or 5,000 or 10,000 — depends on the amount I have with me) and which gives higher returns (15%) and from which I’d be able to withdraw at any point in time.

Follow-up revealed that the reader wanted to do this for contingency planning (read emergency use).

I’m afraid that’s the wrong approach. Funds meant for contingency planning or emergency use shouldn’t be put in investments that seek to generate higher returns. Funds meant for contingency planning/emergency use need safety of capital (read as low a risk as possible) whereas investments that seek to generate higher returns promise exactly the opposite.

If you’re still willing to be adventurous, I’d recommend that you preferably stick to a Conservative Allocation Fund — you can begin your research here.

Query #3: Prepaying a housing loan.

I have a home loan of around 10.5 lacs. I have saved 5 lacs in the form of a fixed deposit and have earmarked this as an emergency fund. I’ve been thinking of using this for making part prepayments on the home loan but haven’t taken a decision yet. I also have a ULIP from ICICI Prudential with an annual premium of 1 lac. It completes 4 years next year and I want to close this and invest in a Post Office Monthly Income Scheme. What would you suggest?

Wouldn’t it be a better idea to close your ICICI Prudential insurance policy sooner? If you’ve already completed 3-years, you can surrender it right away. Think about the Rs 1 lac that would straightaway appear on your cash flow each year. You can use this to make part prepayment on your home loan (and make your home truly yours) instead of dumping it in that lame insurance policy for another year (and making ICICI richer!).

If your goal is to be debt-free, you could also use the surrender proceeds to make an immediate and huge prepayment on your home loan. But if your goal is to create a passive source of income, you could opt for the Post Office Monthly Income Scheme and do what I suggested earlier.

I’d continue to keep the Rs 5 lacs as a major-emergencies fund — probably split it into 5 fixed deposits of Rs 1 lac each.

Would you recommend anything different?


You already know that I’ve made an extremely stupid mistake due to which I’m now looking at an income tax liability in the upper five figures! This means I’ll simply be unable to meet all of my financial goals over the next three months (because I really won’t have much to call as a salary). Since I know that I can’t meet all my goals, I’ll need to prioritize as to which ones I need to continue through this tough period and which ones I can postpone.

But, before all that, let’s see what my current set of goals are.

Short-term goals (for me these are less than a year away)

  • Contribute Rs Z into my Travel and Living fund each month.

Medium-term goals (for me these are between one year and three years away)

  • Contribute Rs M each month into my Swift-replacement fund. Period: April, 2010 through March, 2013. (I do a SIP into a Conservative Allocation Mutual Fund for this purpose.)

Long-term goals (for me these are more than three years away)

Goals listed, here’s my thinking.

If I add up my monthly contributions into the Swift-repair fund, the Swift-replacement fund, and the Travel and Living Fund, their sum is more or less equal to the additional income tax that I’d be paying each month up to March. Since these goals aren’t that critical and can be stopped/postponed, I will stop/postpone them. What a lucky coincidence!

PS: I know that I’ve said that Travel is my #1 goal — but I guess paying income tax takes precedence!

For the next three months, I will, however, continue to contribute into my emergency fund and into my Financial Independence portfolio since these are critical goals and can’t be compromised upon.

All this just because I made one stupid mistake!

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This is a question that I’m often asked. In fact, a couple of weeks back, a colleague whose internship was recently converted into a full-time position also posed the same question:

“Starting this month, I’ll be earning a regular salary. How do I ensure that I don’t spend it all away?”

Awesome! The road to financial discipline begins when you have the right mindset. And the fact that you’re asking this question shows that you have the right mindset.

I wish I’d asked this question when I started my career. Because, the problem with newly found financial freedom is financial indiscipline — the desire to spend it all away. And I did spend it all away. Four years into my career, I seriously wondered where all that money went and I didn’t have an answer. I wish I was financially disciplined.

In retrospect, I believe the trick to learning financial discipline when you’re beginning your career is to ensure that your money gets automatically saved each month even before it reaches your hand. When you can’t touch it, you can’t spend it.

Now, how do you do that? I’d recommend two options to begin with.

  • Contribute fully to the Employees’ Provident Fund (EPF) and optionally as much as you can to the Voluntary Provident Fund (VPF).

If your employer offers you an option to avail the EPF facility as part of your compensation, I’d strongly recommend that you take up this option. I’ve written quite a bit about the EPF in the past and I’d like to particularly highlight this point.

A quick example:

Suppose your Basic Salary is Rs 10,000 per month. When you opt for the EPF, you automatically save a minimum of Rs 2,400 each month (12% of your Basic Salary that’s directly deducted from your take home pay plus an equal match from your employer) in your EPF account. For the amount that you contribute, the deduction from your salary happens even before your salary reaches you. Simply put, you can’t spend this amount. Passive financial discipline. It’s what they call paying yourself first elsewhere.

And you could even bump-up your contribution by opting for the VPF. A strong case in point: D has been contributing an additional 8% to the VPF since she started her career almost four-and-a-half years ago. So she’s been automatically unable to spend 20% of her Basic Salary (or 8% of her Gross Salary) each month.

Automatic financial discipline. Trust me. This method simply works.

  • Start a Recurring Deposit (RD) for one year.

While passive financial discipline is good, it’s great to learn some active financial discipline as well. To do that, open a one-year RD with the bank where you have your salary account. Fix a monthly contribution that you think is doable (I’d recommend 20% of your monthly Gross Salary) and transfer this amount each month into the RD as soon as you receive your salary. Though I’d prefer that you do this manually each month (remember, you’re learning active financial discipline), if your bank allows you to automate these monthly transfers between your salary account and the RD account, set the transfer to happen a day after the expected monthly date of credit of your salary.

Do this for one year and you’ll have learned financial discipline.

12% of your Basic Salary (or 4.8% of your Gross Salary) into the EPF plus another 20% of your Gross Salary into the RD. That’s 25% of your Gross Salary saved each month. Enough to inculcate financial discipline?

What do you think?


A reader asks,

I work for a multinational and my wife works for the Government. We normally use my salary for day to day expenses while my wife’s salary remains almost untouched. Where can we save/invest her income while keeping our peace of mind (not keen on the equity markets).

Here’s what I read from your situation: A steady and fixed monthly cash surplus that you’d like to save in non-equity instruments.

Now, what are your options?

I’d strongly recommend the 5-year Post Office Recurring Deposit scheme. Given the stability of Government employment, the lock-in period plus the requirement to make a deposit each month shouldn’t be a concern for you. At the end of 5 years, should you be in a position to do so, you can extend the account for a further block of 5 years.

I’d also recommend that you split your savings into multiple deposit accounts. For example: Suppose you plan to save Rs 20,000 each month, open 2 deposit accounts, each for Rs 10,000. Provides a degree of financial flexibility.

What do you think?

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When you plan your investment portfolio, it’s a good idea to choose those financial instruments that do not require you to make mandatory investments each month. With this strategy, you gain financial flexibility i.e. you can invest whatever amount you can into your investment portfolio at that point in time.

For example:

Suppose you choose to include a Post Office Recurring Deposit with a mandate of Rs 5,000 per month in your investment portfolio. When you make this choice, you’re locked into depositing Rs 5,000 each month for the next 60-months. On the good side, it does bring discipline, but on the flip side you loose an equal amount of financial flexibility, which I believe ought to be a strong consideration whenever you make a choice of investment.

Now, if you’re looking for both discipline and flexibility, a good option would be to try and minimize the lock-in as far as possible — in this case, you could opt for a 12-month Recurring Deposit at your bank.

Personally, I am locked into one such deposit. The first thing I do each month on salary day is to set this amount aside — I call this my EMI (Equated Monthly Investments).

What do you think?


A friend asked,

I’m in the midst of changing jobs and have opted to withdraw the savings in my Employee Provident Fund. It’s a decent sum — around Rs 300,000 — and I wish to keep this money safe. Is there a way I can achieve this and yet earn a steady income?

My immediate answer was a fixed deposit with periodic interest payouts, but my friend has been investing in tax-saving fixed deposits and was looking to diversify. My next suggestion was the Post Office Monthly Income Scheme. And, in case you don’t need the monthly income, automatically roll that amount into a Recurring Deposit.

What would you suggest?


[This one's an FYI post.]

Three percent.

If you open a 5-year Recurring Deposit (RD) at the Post Office through an Agent, the Agent gets a commission of 3% on the amount deposited each month. For a Rs 5,000 per month RD, the Agent’s commission is Rs 150 per month. The good thing though is that this commission isn’t deducted from your depositit’s paid separately by the Post Office to the Agent.


D was curious to know,

How much should I save/invest each month if I want to build a corpus of 5 lacs (Rs 500,000) in 5 years? Also, in which financial instrument should I save/invest this monthly amount?

I’d recommend saving Rs 7,000 each month in a 5-year Recurring Deposit at the Post Office. An absolutely safe and disciplined approach to building the targeted corpus. At current interest rates (the interest rate is locked once you open the deposit), the maturity amount would be 5.1 lacs (Rs 510,230) (slightly higher than the target).

What do you think? Can you suggest an alternate investment strategy?