A Recurring Deposit is a financial instrument through which individuals can deposit a fixed amount of money every month for a fixed period of time. The money deposited would accrue interest over the time period of the deposit, and the interest would be payable over a monthly, annual or end of maturity basis.
A Recurring Deposit or RD, as it is commonly known as, is a good alternative for those who do not have a large amount of capital to invest in a Fixed Deposit. As compared to a Fixed Deposit, which requires a one-time deposit of a sum not less than Rs. 10, 000, RD allows for a minimum deposit of Rs. 500, with each subsequent deposit made to be in multiples of 100.
In this way, an RD allows for individuals to be able to budget as well as save for the future. A Recurring Deposit also pays out the same rate of interest as a Fixed Deposit, depending on the tenure of the deposit.
An RD can be for tenures ranging from 6 months to a maximum of 10 years.
The LIC or Life Insurance Corporation of India is a company that was instituted in the year 1956 with the aim of providing life insurance policies to the Indian people. The company is now the largest provider of life insurance in India, with assets worth over $ 230 billion.
The Post Office, also known as India Post, was set up in the year 1774 by the British Empire. With a network spanning the length and breadth of the country, the Post Office runs services that include letters, parcels as well as financial services like the Public Provident Fund, life insurance and savings accounts and recurring deposits.
LIC Recurring Deposit
The LIC Recurring Deposit scheme is a financial tool that enables individuals to save money and earn from their savings. The LIC RD is known as the Jeevan Saral plan and is a recurring deposit plan that allows individuals to deposit a sum of money either monthly, quarterly, half-yearly or annually for a fixed duration, on which they will receive a pre-determined interest.
Individuals who wish to invest in the LIC Jeevan Saral can do so by opening an account with the LIC, after which they can select the tenure of their deposit. This can range between a minimum tenure of 10 years and a maximum of 35 years.
This is a long term deposit plan that offers individuals attractive rates of interest, as well as the chance to decide the premium amount. If the individual survives till the deposit matures, he stands to receive 250 times the deposit, which is the maturity sum along with loyalty additions. In case the investor passes away before maturity of the term, a guaranteed return of investment of 250 times the initial amount deposited will be transferred to his heirs.
Individuals investing in the scheme also stand to benefit from income tax exemptions, as the premium amount as well as the amount deposited is exempted from income tax under Section 80c.
The LIC Jeevan Saral scheme has another advantage in that it is auto renewed. If an individual forgets to claim the premium upon maturity, the scheme is renewed for an additional 10 years, and he will receive additional premium over the extended period of time.
The financial future of family members can be safeguarded from an early age through this scheme, as the minimum age for depositors is 12 years of age.
Elderly investors stand to receive an additional amount as premium, with the minimum amount received as premium guaranteed being Rs. 400 a month.
In case the individual wishes to opt out of the scheme, he may do so partially after a period of 3 years from the commencement of the scheme.
To incentivize investors to invest in long term policies, LIC offers a loyalty addition bonus for every year above a 10 year deposit tenure. This amount will be handed over to the investor upon maturity of the deposit.
Post Office Recurring Deposit
The Post Office Recurring Deposit scheme is a 5 year RD scheme. Under this, investors stand to receive a guaranteed sum assured upon maturity of the premium deposited over the term.
The Post Office Recurring Deposit scheme allows investors to make an initial deposit of Rs. 10/- and subsequent deposits in multiples of 5, with Rs. 10/- being the minimum amount. The deposits have to be made on a monthly basis, with the deposits accruing interest at the rate of a Foxed Deposit scheme.
Investors who choose to would like to invest in the Post Office’s RD scheme can open as many accounts as they desire at any of the post offices in the country. Individuals can also open accounts in the names of minors, with the minimum age for opening an RD based account being 10 years.
Upon maturity, the investor will receive a Sum Assured along with the interest for the period, i.e 5 years.
Investors can also choose to open a joint account for their Post Office RD schemes, and can choose to transfer these accounts to any post office within the country.
Comparison Between LIC Recurring Deposit and Post Office Recurring Deposit
Given below are the differences between the Life Insurance Corporation’s recurring Deposit and the Post Office Recurring Deposit scheme:
|LIC RD||Post Office RD|
|Tenure||Up to 35 years||Up to 5 years|
|Minimum amount||Rs. 250||Rs. 10|
|Subsequent premium amount||Multiples of Rs. 50||Multiples of Rs. 5|
|Loan against policy||Available||Not available|
|Rate of interest||Not guaranteed- loyalty addition provided||8.4% per annum, with interest compounded per quarter|
|Tax benefit||Yes, under Section 80c up to Rs. 1, 00, 000 (premium amount)||No benefit|
|Premature Surrender||Yes, 80% of Monthly Sum Assured after 3rd year, 90% after 5th year||Yes, but interest penalty charged|