Leave SIP, Recurring Deposit (RD) is a superhit investment for earning! MRni formula will tell how much return you will get.
Recurring Deposit (RD): The biggest feature of recurring deposits is that here you can invest a fixed amount every month like SIP. In this, interest is added to your account by compounding on a quarterly basis. Let us explain how the interest amount is added in the RD account.
Recurring Deposit (RD) is a great investment option, especially for those who want to deposit small amounts regularly. Investing in RD is similar to SIP, where a fixed amount is deposited every month. In this, interest is calculated under the MRni formula, due to which investors get better returns. This facility is available in government and private banks along with post office. On an average, 5.5% to 6.7% annual interest is being received in RD. The biggest feature of recurring deposit is that here you can invest a fixed amount every month like SIP. In this, interest is added to your account by compounding on a quarterly basis. Let us explain how interest amount is added in RD account.
There are 2 types of RD
There are 2 types of schemes in this. In regular recurring deposit, a pre-determined amount has to be deposited every month. Whereas in flexi recurring deposit, this amount can be increased or decreased later.
How does MRni formula work in RD?
- M = Maturity amount
- R = Monthly installment
- n = Number of quarters (tenure)
- i = Interest rate per quarter (total interest earned)
The formula for interest on monthly investment is MRni
M = R [(1+i)n – 1] / 1-(1+i)(-1/3). Here M means amount at maturity. While R is the total number of installments, n is the total number of quarters and i is the interest rate.
Formula for lump sum investment APrnt
A = P (1 + r/n) ^ nt. Here A means the amount at maturity. P means the amount invested, r means the interest rate, n means the total number of quarters and t means the total number of days invested.
For example, if you invest ₹10,000 every month in RD at an interest rate of 7% for 5 years, then your total investment will be ₹6 lakh. Through the MRNI formula, you will get an interest of about ₹1,12,000 on this.
Why choose RD?
- Low risk investment: Money remains safe in this.
- Fixed interest rate: The interest rate remains stable irrespective of the repo rate.
- Big fund from small investment: A large amount can be raised from monthly savings.