Investment: How effective is auto renewal for investment? Take a look!


#NewDelhi: Different schemes of the bank invest in different ways for specific purposes. At the maturity of all those schemes, many people select the auto renewal option. But choosing this auto renewal option may not always be as effective.

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Maturity Matching Deposit

Small credit risk investments should be avoided when investing in various types of bank schemes. While it is possible to know the maturity value of other investments, it is not possible to know the value of such small credit risk investments. It is also possible to know the maturity value of recurring deposit. Many people unknowingly start investing in banks. But even if you invest in a bank, the returns are much lower. As a result, there is a need to invest in different types of mutual funds and equity funds. In this case, if the auto renewal option is selected in different schemes of the bank, it is not possible to understand the amount of investment and return properly. For this, it is necessary to keep an account of how much return is possible after investing in each scheme. It should be run and stopped accordingly.

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Reinvestment risk

There is a possibility of reinvestment in the same scheme through auto renewal. As a result, it is possible to start investing in schemes that do not offer high returns. If a scheme earns interest at the rate of 5.25 per cent per annum and then it is auto renewed, then the interest rate can be reduced to 4.50 per cent. This leaves the possibility of re-investing in the same scheme through auto renewal. As a result, the amount of money invested decreases at the time of return. Returns are not available accordingly.

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The solution

To reduce the problem of auto renewal, banks need to invest more in recurring deposits (RD), systematic investment plans (SIPs) and other schemes such as mutual funds and equity funds. There is no need for auto renewal to invest in all these schemes. It is also important to keep in mind that the money of any scheme of the bank should be taken care of at the time of maturity whether it has started again or not. In this case you need to deposit that maturity money in your savings account!

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