RECURRING DEPOSITS CAN CREATE WEALTH

Recurring Deposits can create wealth. How?

The Manager of a new generation private sector bank had contacted me with a request. He wanted me to join up in his drive to mobilize Recurring Deposit accounts. He was so persuasive that I had let down my guard for once and had agreed to comply. According to him I did not have to visit his bank to open the account. It could be opened in the comfort of my home provided I had an internet banking facility mapped to the Savings Bank account I had with his bank. If I had assigned any nomination to the SB account, the same nomination would be extended to the Recurring Deposit account I would open.

The account was opened without any hassle. A standing instruction was given to the bank to debit monthly installments from the SB account. The account was for one year. I could see that monthly installments were promptly debited from the SB account. The efficiency of the system surprised me. When the Recurring Deposit Account had reached maturity, the proceeds with interest due was credited to my SB account promptly. There was no need to visit the bank at any point.

I started thinking. If I were to open a Recurring Deposit account through internet banking on the 1^st of every month for the next 12 months, the maturity proceeds would be credited to my SB account on the 1^st of every month of the ensuing year. The cash inflow would improve my financial status tremendously. If I were to repeat the process of opening the Recurring Account every month as long as I would like to, it would ensure the flow of additional cash for my needs throughout my life.

The quantum of installment is for the depositor to decide. It could be multiples of Rs.100.00 or Rs.1000.00 according to capacity of the depositor. There is one hitch. In the initial year the installments would rise with the passage of each month. The combined installments at the 12^th month would be Rs.12000.00 if the monthly installment is set at Rs.1000.00. If this can be managed the cash inflow would begin from the 13^th month. And the depositor would have no difficulty in carrying on with process from the 13^th month onwards as he would have enough money – the combined savings being Rs.150096.00 for an year -   with him then on.  The illustration elaborates the economics.

DATE OF INSTALLMENT	REMITTANCE FOR THE MONTH	MATURITY DATE	MATURITY VALUE/ PAYMENT
1st January          2013	1000	1st January          2014	12508
1st February        2013	2000	1st February        2014	12508
1st March           2013	3000	1st March           2014	12508
1st  April               2013	4000	1st  April               2014	12508
1st May                2013	5000	1st May                2014	12508
1st June               2013	6000	1st June               2014	12508
1st July                2013	7000	1st July                2014	12508
1st August           2013	8000	1st August           2014	12508
1st September     2013	9000	1st September     2014	12508
1st October          2013	10000	1st October          2014	12508
1st November      2013	11000	1st November      2014	12508
1st December      2013	12000	1st December      2014	12508

interest @9% pa courtesy State Bank of India

If one finds it difficult to save every month he can make it a bimonthly affair. If one does not have Rs.1000.00 to spare every month he can reduce the quantum to multiples of Rs. 100.00. This is purely a voluntary form of savings from one’s own income. As the income rises the quantum of installments can also be raised. Though the time frame can be enlarged I would suggest that it may be confined to 12 months only. Money we make is for our needs. Enhanced time frame would decelerate liquidity that is absolutely essential. What could be spared from the maturity proceeds may be diverted to fixed deposits or other forms of investment.

There is a question. How can a salaried employee or a person with variable or fixed income manage to set apart the installments to the Recurring Deposit account from the limited income? There are two surmises. One is that a person can always set apart a portion of his income towards his savings. The second is that the income of an individual always goes up. It is never static.  He has to only set apart the periodic hikes such as increment , enhancement in DA or the hike in the fixed income towards the installments.

I would suggest that the process is carried out through Internet banking. It spares us from visits to the bank. We do not have to fill vouchers or keep passbooks. We can operate the process from the comfort of our home any time during day or night. We can always view the position of our accounts. We can move from strength to strength in terms of financial capability. It makes creation of wealth very simple.

There is no magic here. It is the will of the individual that prompts him to save a part of his income resulting in financial stability for the whole family.