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Post-office Recurring Deposit

  • Tejesh Kumar
  • Jan 21 2021
  • 8 minutes
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What is post-office Recurring Deposit?

Post Offices in India have a huge network that can reach the remotest parts of the country. Apart from the postal services, post offices are also known for the various investment products offered by them. These investment products were developed keeping in mind the rural population and to boost the habit of savings and investment in them. 

As most banks even today do not have adequate reach in the remotest parts of the country, post office investment schemes can provide good investment options at a relatively low cost. One such scheme is the 5 year Post Office Recurring Deposit Scheme, popularly known as the PORD (or National Savings Recurring Deposit). 

Read on to know more about the Post Office Recurring Deposit Scheme/National Savings Recurring Deposit.

PORD is a Government-backed systematic savings plan with a fixed interest rate.This scheme provides guaranteed returns that help investors to save equal and sizeable sums of money over 5 years.

The account can be opened with a minimum investment sum of Rs. 10 and has no upper limits. You can also close this account prematurely but will be subjected to penalties.

Investment Goal

This scheme was launched by the Indian Government with the objective to provide a risk-free scheme to conservative investors. The scheme can provide guaranteed returns on monthly deposits that are made over 60 months at a higher interest rate than traditional banks.

Highlights

  1. Risk

Deposits made by the investor under the PORD scheme are government-backed deposits and hence are completely secure. The returns are not subject to any fluctuation unlike mutual fund markets making them ideal for risk-averse investors.

  1. Returns

The returns on PORD are in the form of fixed interest received on the deposits made every month continuously for 5 years. The current interest rate for PORD is 5.8% which is higher than the average bank rate for recurring deposits (starting from 2.75% or 3% depending on the bank). The interest on PORD is compounded quarterly and paid on an annual basis to the investors or depositors.

  1. Taxation

The contributions made to a PORD account are eligible for a tax deduction under section 80C of the Income Tax Act, 1961. The maximum deduction under this section is Rs. 1,50,000. The interest earned on the PORD is taxable under the head “income from other sources’ . 

The amount of interest is added to the taxable income of the depositor and taxed at the applicable slab rates. The interest income over Rs. 40,000 (No TDS for senior citizens) is subject to a TDS at the rate of 10% for depositors having an active and valid PAN. In other cases, the depositor not having a valid PAN will be charged TDS at 20%. 

  1. Lock-in Limitations

The deposits made under PORD are subject to a minimum lock-in period of 5 years. Depositors have the opinion to extend their deposits under PORD for a further period of 5 years making the total deposit tenure of 10 years maximum.

  1. Withdrawals

The scheme allows the depositors to withdraw from the scheme only after the completion of 1 year from the time of making the initial deposit. At this time, the depositors are allowed to withdraw 50% of the balance in the fund. The depositors are required to repay the amount withdrawn along with the simple interest applicable to them.

  1. Capital Protection

PORD is part of the Post Office Savings Schemes. These schemes are Government-backed schemes to promote the habit of savings and investment among the rural population, especially providing them with better investment options. Hence, the capital under this scheme is completely secure without any risk of loss or becoming NIL due to market fluctuations, unlike mutual fund investments.

  1. Inflation Protection

Like most Government-backed schemes, PORD also provides no protection against inflation. When inflation is above interest, the account earns no real returns.

Overview

Feature Description
Eligibility Any resident Indian 
Entry ageFor adults – Above 18 years For children – Minors above the age of 10 years
Fee Structure (Account Opening Fee & Maintenance Charges)The minimum investment is Rs. 100 (continued with multiples of Rs. 10)
No maximum limit of investment.
Interest 5.8%per annum.
Exit option / Liquidation of policyAllowed after 3 years. PO Savings account interest applicable on deposits closed prematurely (even if closed one day before maturity). No premature closure is allowed if advance deposits are made and till they are exhausted.
Nomination FacilityThis facility is available under PORD  
Account Holding CategoriesThe conditions for opening a PORD account are,It can be opened by a single adultJoint accounts are permitted with up to three joint account holdersA guardian can open a PORD account on behalf of a minor or person of unsound mindA minor above the age of 10 years can open a PORD account in their name.A person can hold multiple accounts without any maximum ceiling.
Tenure5 years
RebateAvailable on advance deposits that can be made up to 5 years (tenure of the deposit). The rebate for 6 months is Rs. 10 for every deposit of Rs. 100 and for 12 months is Rs. 40 for every deposit of Rs. 100
Loan A loan is available after the completion of 12 months and if the account is continued for a further period. The loan amount available in such a case is up to 50% of the deposit. Interest on such loans will be 2%+ applicable interest rate on RD.If the loan is not repaid, the outstanding loan amount including interest will be deducted from the maturity value of the deposit.
DefaultIf a deposit is not made for every month, a default of Re. 1 for every Rs. 100 is charged for every month of default. After 4 regular defaults, the PORD account will be closed if not revived within two months of the due date of such payments.If the default is not for 4 months, the account can be extended for such a defaulted period beyond maturity. 

Account Setup Information

A PORD account can be opened by any eligible person through online or offline modes.

  1. Online mode

The steps for opening  a PORD account online are,

  1. The first step is to download the India Post mobile application from Google Playstore
  2. Register on the app and login using the valid credentials
  3. The next step is to click on the ‘Requests’ tab on the home screen and click on PORD 
  4. The user will be taken to a new page where they will have to provide the necessary details like name, address, deposit amount, deposit tenure, nominee, etc.
  5. After providing the same, they will have to make payment of the deposit amount through any of the online payment options provided.
  6. The details of the PORD account will be sent to the registered mobile number of the customer.
  7. Offline mode

The steps to open a PORD account offline are,

  1. Visit the nearest post office or the post office (where a savings account is already held) and fill out the application form for PORD. The form is also available at the website of the Post Office in the ‘Forms’ Section.
  2. Submit the form along with the required supporting documents
  3. Make the initial deposit (minimum Rs. 100) to open the PORD account.
  4. Get the acknowledgement of opening the account and the account details. 

Key Takeaways

  • Enjoy guaranteed principal and interest with PORD.
  • Save finite sums of money for a period of 5 years.
  • The scheme’s interest rates are aligned with G-secs of similar maturity and do not provide inflation cover.
  • You can easily transfer the account from one post office to another with automatic renewal.

FAQs

1. Can a PORD account be opened jointly?

A. Yes. A PORD account can be opened jointly by up to 3 account holders. 

2. What is the minimum amount to be deposited under PORD?

A. The minimum amount to be deposited under PORD is Rs. 100 and further investment is done in the multiples of 10.

3. When is the depositor allowed to withdraw from the PORD account?

A. The depositor is allowed to withdraw from the account prior to its maturity after the completion of 3 years.

4. Can the nominee or the legal heir continue the PORD account till maturity?

A. Yes, the nominee or the legal heir is allowed to continue the PORD account till maturity after making an application for the same.

5. What are the various forms to be submitted under the PORD scheme?

A. The list of forms to be submitted under PORD is,

Form Reason
Form-1Application for opening a National Savings RD account
Form-2Application for premature closure of RD account
Form-3Application to retain the account post maturity 
Form-4Application to extend the maturity by another 5 years
Form-5Application for loan application against the RD account
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