In the last few years, people's inclination towards investment has increased rapidly. Different investment tools are being explored. Be it a safe investment or the promise of high returns on risk, there are many investment tools available. In such a situation, you can choose the right investment option according to you. If you want high returns on your investment and also want a safety net, then you can also choose a Systematic Deposit Plan. But what is this plan and how is it different from normal FD i.e. fixed deposit?
What is a Systematic Deposit Plan?
Systematic Deposit Plan is a type of recurring deposit scheme, in which you deposit money on a regular period, but the deposit you make is considered as a fresh FD and the interest rate applicable at the time you start the FD is applicable. This means that you earn more interest on every deposit due to different interest rates, whereas in a normal FD, you earn more interest on the entire amount at a fixed interest rate. The interest is calculated after maturity.
Besides, one of its specialties is that you can invest in it little by little and many times. That is, in a normal FD, you need a large amount to deposit the sum at once, and for this, you save money for months. On the contrary, in SDP you can invest money little by little and many times. You can invest Rs 2000-3000 every month as per your wish.
What are the benefits of a Systematic Deposit Plan?
Through this, you can create a good fund for yourself through SPD even with less investment. It has many benefits.
1. One advantage of this is that if you make a deposit, the interest rate applicable to it will remain fixed till its tenure. With this, you will not have to worry about the principal amount and maturity amount.
2. You can avail the benefit of premature withdrawal on SDP. If any need arises, you can withdraw your deposit before it becomes premature.
3. You can also choose flexible tenure at your convenience. If you want to prepare funds for the long term, then you can take advantage of compounding and get higher returns. At the same time, if you want to invest for the short term then you can invest for that.
What are the shortcomings of a Systematic Deposit Plan?
1. The provision of applying the current interest rate with every deposit comes with a drawback here in the sense that suppose the interest rate on fixed deposits has been reduced and you are depositing money during this period, then you will not get the same. You will get less interest on deposits. What happens in recurring deposits is that you get the same interest on every installment as it was at the time of starting the investment.
2. You will have to pay a penalty for premature withdrawal, as is the case in most investment schemes.
But in the end, it has to be acknowledged that if you are such an investor who cannot invest a large amount at one go, rather it is easier to invest little by little, then in such a situation SDP can be a very good option for you. With this, you can get high returns on regular investment.
