Saving money is one of the most unquestionable ways of creating a stable financial future. Savings are often established by setting money away in a bank savings account, which may then be utilised for emergencies or to reach short-term objectives.
A systematic and disciplined approach to saving can help you reach your financial objectives efficiently and prepare well for a secure future. There are several options accessible, both safe and risky, for saving and investing. In this article, we discuss a new tool, namely systematic deposit plan (SDP).
What is a systematic deposit plan?
An SDP, also known as a systematic deposit plan, is an excellent approach to invest your hard-earned money to get a high return. Each deposit you make when investing through SDP is considered a fresh FD, earning interest at the rate in effect at the time the FD is booked. Here, each deposit has a different interest rate that determines how much you may earn in returns, unlike typical FDs where the lump sum amount matures at a fixed interest rate.
The good thing about SDPs is that they allow you to make frequent little investments that will eventually provide a larger return. You can put as low as 5,000 rupees into the systematic deposit plan each month. This indicates that you may simply set aside Rs. 5,000 each month rather than needing to save for months to be able to invest in an FD.
What are the major benefits of an SDP?
Your capacity to build your wealth slowly and safely is one of the main advantages of investing through an SDP. While the interest rate at the time of your deposit will determine the returns you get, this rate will be fixed throughout the duration of the deposit, guaranteeing the security of your principal and maturity amount.
Liquidity is another crucial aspect to consider while selecting an SDP. Premature withdrawal of a deposit is permitted in cases of urgent financial need. This guarantees convenience since you can easily spend the money you've saved in times of need.
In accordance with your financial objectives, you can pick a flexible tenure with an SDP. You can select a longer tenure and let the money grow slowly and steadily through the power of compounding if you're trying to develop a good saving habit. You can choose to invest for a shorter period of time if you just have short-term goals, like buying a car.
Are there any drawbacks of SDP?
Every new instalment of the SDP will earn the then-current interest rate, unlike recurrent deposits where each instalment gets the same interest rate that the bank guarantees you at the beginning. Your new instalments will yield you smaller profits if interest rates drop more quickly in the near future.
Additionally, as was already noted, deposits that are at least three months old may be prematurely withdrawn. However, you might have to incur a fine to be able to do so.
To sum up, the SDP, like RD and SIP, enables a risk-averse investor to regularly invest from his/her monthly income. Therefore, SDP offers a chance to make continual investments for an investor who finds it difficult to make big investments all at once.