My parents have been investing in postal RD for several years now. With the rates going down each passing year, I wanted your suggestion whether to continue the same or close the deposit?
Partho Ghosh, Kolkata
You are right in observing that the interest rate on this deposit is going down each passing year. Currently the rate is 7.2 per cent per annum, compounded quarterly. According to the postal department, on maturity after five years; Rs 10 monthly RD at the post office will fetch Rs 723.14. Depending on what denomination of RD your parents have, the maturity will vary. It appears that your parents wish to make regular savings, wish to take fewer risks and prefer a fixed return investment. However, they are not factoring in the impact of inflation, which is reducing the real return that they are earning with this savings. The concept of RD can be extended to mutual fund systematic investment plans (SIP). In this form of investment, one puts a fixed sum into an investment every month or any other set frequency, depending on the availability of the same. Investments in mutual funds are not guaranteed, but that should not stop your parents from trying these out. There are different types of mutual funds, with varying degrees of risks that they are exposed to. Depending on their comfort to risk, they could consider an investment of their choice. As for the RD at the post office, they should consider closing the same depending on how long they have already contributed to the RD. There is no clear figure or rate that is mentioned in the Post Office Recurring Deposit (Amendment) Rules, 2011 on what one gets in case of an early closure. However, you could check with the post office on what will be the liability or payout if you close the account immediately.
