What is a Recurring Deposit (RD)?

1. Definition:
   A term deposit where users invest a fixed amount monthly for a predetermined tenure (e.g., 6 months to 10 years). At maturity, they receive the principal + compounded interest.

2. Key Features:

   • Guaranteed Returns: Interest rates are fixed upfront (similar to FDs) and not market-linked.

   • Flexible Tenures: Typically ranges from 6 months to 10 years (varies by bank).

   • Low Risk: Ideal for risk-averse investors.

   • Monthly Contributions: Minimum deposit usually starts at ₹100-₹500 (bank-dependent).

   • Premature Withdrawal: Allowed with penalties (partial/full closure).

3. Interest Calculation:

   • Compounded quarterly (most banks).

   • Formula:
     [ Maturity\ Amount = P \times \left( \frac{(1 + r/n)^{nt} - 1}{1 - (1 + r/n)^{-1/3}} \right) ]
     Where:

     • ( P )= Monthly deposit

     • ( r )= Annual interest rate

     • ( n )= Compounding frequency (e.g., 4 for quarterly)

     • ( t )= Tenure in years

4. Taxation:

   • Interest earned is taxable under Income Tax Act, Section 80C (no tax deduction).

   • TDS (Tax Deducted at Source) applies if interest exceeds ₹40,000/year (₹50,000 for seniors).

5. Types of RDs:

   • Regular RD: Standard monthly deposits.

   • Flexi RD: Vary deposit amounts within a range.

   • NRE/NRO RD: For Non-Resident Indians (NRIs).

   • Senior Citizen RD: Higher interest rates (0.25–0.75% extra).

6. Documents Required:

   • KYC (PAN, Aadhaar, address proof).

   • Nomination details.

7. Top Providers:

   • Banks: SBI (6.50–7.50%), HDFC (6.50–7.75%), ICICI (6.70–7.50%).

   • Post Office RD: 6.7% (5-year tenure, government-backed).