One of the financial habits I picked up from the women in my family was the ‘chit’ system of saving. My mother and late grandmother often opened ‘chits’ with jewellery stores and saree stores. The chit system, essentially, was one where they gave the shop a fixed sum of money every month for a certain period of time, at the end of which, the store gave them some extra credit along with the amount that they had already invested. For example, you could invest Rs 500 every month for 11 months, after which the shop will give you credit for the 12th instalment. You will have Rs 6,000 shop credit when you would have paid Rs 5,500.
The chit system is still prevalent in many jewellery shops and saree shops for the simple reason that it allows its customers, primarily women, to accumulate a significant amount without much effort (not to mention the fact that the shopkeeper gets an assured sale). Enrolling in a chit though makes zero sense if you’re not interested in buying a saree or jewellery. However, if you would like to inculcate the discipline of saving every month (without any risk), I would like to point you to the Recurring Deposit account.
The Recurring Deposit account, or RD, is a kind of bank deposit account, similar to a Fixed Deposit account. You deposit a certain amount of money, every month for a fixed duration, and you can earn interest on this money. Every bank has an RD facility, and the interest rates vary between 6-8% per annum. You can open an RD in some banks with as little as Rs 10 per month. When you open one, the bank debits the amount every month from your account, into the RD. RDs offer compound interest, where the interest is compounded every quarter. This means that the interest you earn every 3 months will be added to your instalment, and it will be this total amount on which the interest for the next three months will be calculated. So, your interest earns interest!
Recurring Deposits are risk-free and offer excellent returns in the short term, and opening a Recurring Deposit is a great way to save systematically for an expense in the near future. I would recommend a Recurring Deposit even if you want to save for jewellery or an expensive saree for yourself because, at the end of the tenure, you get cash. When you start a chit on the other hand, although you might get a slightly higher return, you’re forced to spend it in the saree or jewellery shop when you might have changed your mind by then.
The Recurring Deposit is the perfect short term investment option for women, because it inculcates a disciplined saving habit that doesn’t involve hoarding cash. I’d recommend opening an RD with a small instalment even if you don’t particularly have anything to save for right now, or have invested in other instruments. After all, extra money is always nice—don’t let anyone tell you otherwise.