I receive 12,000 rent every month, but I am unwilling to put it in the stock market. How much maturity will I get if I put rental amount each month in FD giving 6 per cent interest rate compounded quarterly for two years? What other fixed income option do I choose? Please help me make comparison in figures.
- Anisha Goyal
By Adhil Shetty, CEO, BankBazaar
Assuming that the FD interests remain stable for the next two years, you will earn an interest of Rs 1,518 on every Rs 12,000 invested for a period of two years at 6 per cent. So, two years after the first FD, you will redeem Rs 13,518 every month. This kind of laddering will give you a steady income for as long as you keep up with the monthly investing. Your other alternative is to open a recurring deposit. In this case, you will receive the proceeds of the amount you invest every month as a lumpsum at the end of the period. For instance, if you invest Rs 12,000 every month at 6 per cent interest for two years, then you will receive Rs 306,613 at the end of two years.
While the effective interest rate in both cases is 6.136 per cent, the RD will give you a smaller amount compared to the 24 FDs as the compounding interval in the RD reduces every month. Bear in mind that the returns from FDs and RDs are taxable as per your tax bracket. Even if no TDS is deducted as the returns are below the threshold, you will need to add the interest income as 'income from other sources' and pay income tax on it while filing your returns.
If you are looking to stay invested for a longer period of up to five years, you can also invest in the National Savings Certificates (NSC) instead of FDs. As there is no cap on the number of NSC accounts one can hold, you can invest in an NSC each month. While the returns on NSC is taxable as per the income tax slab, the returns at 6.8 per cent are higher than the FDs.
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