Lesson 2: Time to start investment

Dear Friend,
After successfully creating a corpus of your Emergency fund, it’s a good time to move your focus to the next step. That is, starting to invest a small portion of your money to create a big corpus for your goals.
Everyone has different income, expenditure patterns and saving goals. But one thing is constant: SAVING. In order to achieve your goal, you need to start saving today.
Some easiest options to save money for a beginner are: Recurring deposit and Fixed deposits.

1.     Recurring deposits: Popularly known as RD, are the simplest option to start saving a small sum of money today.
All the Nationalized or other banks provide this facility to start RD either online or through personally visiting the bank branch.
In RD, you give an instruction to the bank to deduct a particular amount of money every month on a chosen date for a chosen period of time.
Example to make it more clear:
Suppose, Gaurav will need Rs. 20,000/- in next year April for purchasing a new refrigerator for his home. It is very difficult for him to arrange 20k in one go, So he will start accumulating money from this month itself. He will instruct the bank to deduct Rs. 2k from his account  on 2nd day of every month for 12 months. Bonus amount will also be provided by bank in terms of Interest amount. This way Gaurav will be able to save 2k * 12 = 24k + Interest =~ 25k in 1 year.
So, you can very clearly see that by saving just Rs. 2k every month Gaurav has surpassed his target amount by 5k. Now he can easily buy a refrigerator as well as some more goody for his home with the extra 5k he saved.



  


2.    Fixed Deposits : Popularly known as FD, are also a good option to save money for the people who tend to splurge the money easily.
Continuing the above example itself. Suppose the plan of Gaurav changed after saving for 1 year. Now he deferred the plan of purchasing refrigerator for 1 or 2 years. What will he do now with the money he already saved ? Should he spend it on his leisure or save it further.
I will suggest you to save it for future use and park the money in FD. In FD you just need to instruct the bank to block this money for a fixed duration as instructed by you.
Here also, bank will provide you with interest amount. So you will have your money growing over the period of time.
For example, if you put the Rs. 20k in a bank FD, your money will grow to approx Rs. 23.5k in two years.


Difference in Recurring deposit and Fixed deposit: In RD, money is debited every month from your account. Where as in FD , you have to put the money in one go, no monthly instalment here.
Bonus tip: Recurring deposit and Fixed deposit interest rates vary from 4.5 % to 8.5% depending on bank and duration for which money is kept with bank.
Hope my post helped you to understand the first steps of Saving.
Keep saving, Keep investing!

Your Friend,
Kumar Gaurav

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