Best time for Bank deposits

Interest rates have been going up for some time now, but how long would they keep going up. From the way things are shaping up, it looks like they would start coming down soon. We can easily assume that the interest rates are at their peak; this would be the right time to lock your investments as good interest rates.

But what if you do not have enough funds to invest, why don’t you start a recurring deposit. Make it a long term recurring deposit. Recurring deposits are similar to SIP’s of mutual funds, in mutual funds there is a risk involved, but in case of recurring deposit, you fix the interest rate the bank would pay you. You make a fixed investment every month, which earns a fixed rate of interest.

As with any investment with a bank, recurring deposits also have a fixed tenure. At the end of the tenure, you get a lump sum, which is equal to the total amount invested, along with the interest earned on it. The best part is the minimum amount can be as small at Rs.100/-. Recurring deposits become more attractive for senior citizens.

Most banks give a higher interest rate for senior citizens. So if you are a senior citizen and you have some extra money and don’t know what to do, instead of leaving it idle in the saving bank account, open a recurring deposit account. But remember, it is like an insurance premium, a commitment, so invest only as much as you can commit over time.

Don’t default on you payment of regular deposit, as this would lead to a penalty, which is like reducing the interest rate you would get. Unlike a SIP with a mutual fund, where you could stop the SIP at any time, you cannot do it with a recurring deposit. Nor can you change the terms mid way. It’s a fixed commitment from both the bank and you.

Creating your retirement plan

We know that one day we would retire. We first start saving money for house, marriage, car, kids then kid’s education and marriage. By the time its time to retire and you find that now you have to start saving for retirement. With the time left, you would not be able to save much. But even then we should try and save, knowing that it will not be enough.

So we can start by preparing ourselves to ensure we are able to fix a leaky tap, an electricity point, tighten a loose hinge or any such job that will help save money, instead of paying for a plumber or electrician. As after staying for so long in the house, most of the things have reached a stage that they will start failing.

As we have mentioned earlier we should start saving, one of the options is to invest in a retirement plan or fund from an insurance company or mutual fund. There is another option, the NPS, this is a good option as the costs are low. Other option is to start investing in diversified large-cap mutual fund and as you come closer to your retirement start shifting to debt funds. After all you want more assurance on returns with less risk as you come closer to retirement.

You have been disciplined till now to meet your goals, so lets get a little more stick with ourselves as we start preparing for our retirement. SIP is a must. Cut cost to ensure you meet your goal. This will help after retirement as well. You won’t have to start feeling bad at that time, since you have already started cutting costs.

SIP with ECS is good, since the saving would happen without your intervention, and since you have given a commitment, you will keep it. Hope you have a PPF account, which has completed 15 years. Continue with it, you can keep going 5 years at a time and you can withdraw a certain amount every year in case of an emergency. Remember the interest is still tax free.

I mentioned sometime back that you should invest in large-cap funds, but do not put everything in mutual funds. Make a plan and allocate certain percentage to each of the classes of funds. Check the value of each fund on a regular basis and ensure that it is as per your plan, if the percentage is high in any of the class, remove some of it to bring it to the plan and put it into the class which has less.

This process is called rebalancing of portfolio. When you do this, you indirectly start booking profits, which helps in increasing the value of your portfolio and reducing risk. The best timeframe would be once a year.

Chose your investments in such a way that you do not end, paying tax, instead of paying yourself. We spoke so much about investment, be we should also plan a withdrawal strategy, to ensure it lasts our lifetime and we do not have to depend on anyone. During investment, we let the corpus grow, after retirement we want this corpus to start giving us returns. This return could be in the form of interest or dividend or withdrawal from Corpus.

Ensure that withdrawal from corpus is minimal, since with every withdrawal the guarantee of return is reduced.

Happy planning!