Parents believe in building a financially secure future for their children. Sometimes, it is crucial to create a legacy by teaching financial discipline. There is no better way to do that than to start a savings incentive scheme in the name of your minor, which can be a recurring deposit (RD).
Shriram City Union Finance Ltd., a deposit-accepting NBFC, offers this facility to natural or legal guardians of all minors.
An RD for minor is a popular term deposit scheme due to its flexible tenure option with small minimum monthly deposits. While regular deposits bring the financial discipline of savings, the benefit of interest makes it an ideal investment instrument as well.
Individuals below the age of 18 can start saving with a fixed minimum instalment of Rs 500 monthly. In a year, this amount can either grow to become more valuable or lose some buying power if not invested today. Here's how!
Say, Aditi's guardians started an RD for her college education when she was 13 years old. The monthly instalment was kept at Rs 2,500 for a tenure of 60 months. At an interest of 8.75% p.a offered by Shriram City at the time of deposit, she will end up with a corpus of Rs 1,88,750 when she turns 18. In this example, with an investment of Rs 1,50,000, Rs 38,750 is gained as interest income.
Similarly, an investment of Rs 10,000 p.m. can create a fund of Rs 7,55,000 in 60 months.
Unlike fixed deposits (FDs), there is no one-time lump-sum payment. Recurring Deposits are flexible as part of individuals' salary or business income that can be set aside every month. In this case, the guardian of a minor.
Along with flexibility and stability, RDs can provide higher rates of interest compared to FDs.
Additionally, depositors can convert the scheme into an FD at maturity if there are no immediate requirements of the fund. If funds are needed to meet set financial goals, opt for an auto refund at the tenure. The amount on maturity will be directly transferred to the registered savings account in this case. Please note, an RD account will require you to sign up for a savings account.
Another popular instrument is systematic investment plans or SIPs that invest in various mutual fund schemes. However, the returns from these schemes are hard to estimate as they depend on the type of scheme and the performance of stock and debt markets. Therefore, the mutual funds' disclaimer explains that these investments are subject to market risks. RD contracts contain an approved interest rate from the date of deposit/renewal till maturity. Therefore, there is a certainty of return that makes RD safe and risk-free. Steady guaranteed returns are a must for a kid's bright future.
Compared to the standard savings account, RD offers better returns to beat inflation. Growing inflation is capable of eroding returns. For example, annual inflation of 6% will eat up one's returns if a savings deposit offers a mere 4%. Shriram City provides up to an 8.75%* interest rate on RDs, among the best returns in the segment.
Needless to say that guardians need to accumulate a corpus under their supervision for their children's school and college education, marriage or just for turbulent days as seen during the coronavirus pandemic.
The key is to start saving for short-term goals as the cost of living can go up or times can become uncertain.
Here are the documents required for a minor recurring deposit:
As per the RBI guidelines, a natural or legal guardian can open an RD account on behalf of the minor and sign off on an application form specifying the mode of payment, deposit tenure, nominee and monthly instalment details. These specifications cannot be changed after opening the account. In this case, the guardian must carry all deposit communications on behalf of the minor. For opening an RD account for the child, simple documentation with guardian's identity proof, address proof along with photographs and cancelled cheque would be required.
However, if the minor becomes a major during the contract period or at maturity, he/she has to furnish his/her PAN details. It is the guardian's responsibility, who was the original signatory, and the minor turned major to complete the documentation as part of the due process.
Instalments will be automatically deducted as per standing instructions. Our NBFC accepts multiples of Rs 500 as instalments per month. The investment tenure ranges from 12 to 60 months with minimum deposit tenure of 1 year and a maximum of 5 years. The interest rates are fixed at the time of deposit and will only be revised for a new RD or on renewals after maturity.
It is important to note that RD is non-transferable and partial withdrawals are not allowed.
RDs may be made in two or three joint names. If any account holder is a minor, similar rules apply. Similarly, a minor can also be a nominee represented by the guardian. The facility can be availed at Shriram City's 900 branches across India or online on our website.
Steps to invest through physical application: How to open recurring deposit for minor
Fill-in forms prescribed by the company
The amount on maturity will be credited directly to the bank account registered with the company. The company also allows premature withdrawals with a lock-in period of three months. According to the RBI norms, an RD receipt cannot be prematurely closed before three months except in the case of the depositor's death. A request letter for premature withdrawal needs to be sent to the company for withdrawal before maturity.
During the Covid-19 crisis, RD remains an attractive and safe avenue for near-term requirements as fluctuations in rates do not impact existing contracts. Depositors, especially conservative investors, stuck to liquid RD as economic conditions remained uncertain and FD rates endured a low in the market.
While RD is not tax-free, the interest income is clubbed with the individual's income for the year; then, tax is levied as per the income tax slab. In other forms of investment, instruments, holding period, and capital gains play a role.
Ahead Of Competition
While RD offers assured returns and is considered risk-free, it is vital to check the instrument's credit quality to safeguard the capital.
Shriram City's Recurring Deposits come with a high-credit-quality rating of ‘MAA+/ with Stable Outlook’ by ICRA. Shriram City is a public limited company that has shown positive growth momentum and has been among the top picks by investors and depositors. The company is known to follow the highest standards of corporate governance and timely delivery of quality financial services in its 45 years in the Indian market. The customer base of five million also speaks for itself.
Online recurring deposit for minor
Secure your kid's future by opening a recurring deposit in the name of a minor with a trusted name like Shriram City Union Finance Limited.
To book an online RD for minor, please click here.