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Understanding the Role of Recurring Deposits in Corporate Finance

July 23, 2025

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Building a secure financial future is a goal that many individuals and businesses strive to achieve. One way to accomplish this is by investing in recurring deposits (RDs). RDs not only help create disciplined saving habits but also provide an ideal way to build a corpus for the future.

In this blog post, we will delve into the basics of recurring deposits and explore their role in corporate finance.

What are Recurring Deposits?

Recurring deposits are financial instruments where a company deposits a fixed amount of money at regular intervals, typically monthly, into a designated account for a specified period.

Unlike fixed deposits, which require a lump sum upfront, recurring deposits allow businesses to plan their savings systematically, making them a flexible and manageable option for corporate finance.

The Role of Recurring Deposits in Business Savings

In the context of business savings, recurring deposits provide a disciplined approach to setting aside funds. For companies, this can be particularly advantageous in several ways:

Predictable Returns: Recurring deposits offer predictable returns on investment, as the interest rate is fixed for the entire deposit period. This stability helps companies forecast their financial outcomes more accurately.
Liquidity Management: By investing in recurring deposits, businesses can effectively manage their liquidity. Since these deposits have a fixed tenure, companies can align their deposit maturity with anticipated financial needs, ensuring that funds are available when required.
Risk Mitigation: Compared to more volatile investment options, recurring deposits are low-risk. They offer a safe haven for excess cash that a company wants to preserve while still earning interest.

Enhancing Corporate Investment Strategies

While recurring deposits may not offer the high returns associated with more aggressive investment options, they play a crucial role in a balanced corporate investment strategy:

Capital Preservation: For companies focused on preserving their capital, recurring deposits provide a secure and stable way to grow their funds without exposing them to high risk. This is especially important for firms looking to maintain a conservative investment approach.
Short to Medium-Term Goals: Recurring deposits are ideal for companies aiming to meet short to medium-term financial goals. By scheduling deposits to mature at key times, businesses can plan their investments and expenditures more effectively.
Complementary Investment Tool: Businesses often use recurring deposits alongside other investment vehicles. For instance, while they may invest in higher-risk assets for long-term growth, recurring deposits can serve as a stable component of their investment portfolio, offering a reliable return.

Realistic Scenarios and Situations

To help illustrate the practical application of recurring deposits in corporate finance, let's explore some relatable scenarios:

Scenario 1: Startup Funding

A tech startup is looking to raise funds for product development. However, traditional

funding options like venture capital or loans come with high-interest rates and equity dilution. By utilising recurring deposits, the startup can attract investors who are seeking stable returns while supporting innovative ideas.

Investors can contribute a fixed amount every month towards the startup's recurring deposit for a predetermined period. At the end of the tenure, the accumulated funds can be used to fuel product development.

Scenario 2: Cash Flow Management

A small manufacturing company experiences seasonal fluctuations in demand and cash flow. During peak seasons, they generate surplus funds that are not immediately required. Instead of letting these idle funds sit in a regular savings account earning minimal interest, the company decides to invest them in recurring deposits.

This ensures that their surplus funds earn higher returns while remaining easily accessible during lean periods when cash flow is tight.

Final Thoughts

Recurring deposits play a valuable role in corporate finance by enhancing business savings and contributing to a well-rounded investment strategy. They provide companies with a secure and predictable way to manage excess cash, plan for future financial needs, and mitigate risk.

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Disclaimer:

The contents herein are only for informational purposes and generic in nature. The content does not amount to an offer, invitation or solicitation of any kind to buy or sell, and are not intended to create any legal rights or obligations. This information is subject to updation, completion, amendment and verification without notice. The contents herein are also subject to other product-specific terms and conditions, as well as any applicable third-party terms and conditions, for which Ujjivan Small Finance Bank assumes no responsibility or liability.

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FAQs

1. How often are the interest rates for recurring deposits updated?

Interest rates for recurring deposits may vary based on market conditions and bank policies. It is advisable to check with the bank for the most updated rates.

2. Can businesses withdraw their recurring deposit before the maturity date?

Yes, businesses can withdraw their RD before maturity; however, this may result in a penalty or loss of accrued interest.

3. Can businesses take loans against their recurring deposits?

Some banks offer the option of availing loans against recurring deposits as collateral. This can be a convenient way for businesses to access funds without breaking their investments.

4. Can businesses invest in multiple recurring deposits simultaneously?

Yes, businesses can invest in multiple RDs with different banks simultaneously. This allows them to diversify their investment portfolio further.

5. Is it possible to modify the monthly instalment amount of a recurring deposit?

In most cases, once a recurring deposit is set up, the monthly instalment amount cannot be modified. It is crucial to determine the right instalment amount before opening the RD account.

6. Are recurring deposits suitable for long-term financial goals?

While recurring deposits are commonly used for short-term goals, they can also be suitable for long-term financial goals depending on the tenure and interest rates offered.

7. How secure are recurring deposits?

Recurring deposits are considered one of the safest investment options as they are offered by banks and regulated financial institutions.

8. Can businesses open recurring deposit accounts for their employees?

Yes, businesses can open recurring deposit accounts for their employees as part of their employee benefit programmes.

9. Can businesses opt for auto-renewal of recurring deposits?

Yes, many banks offer auto-renewal facilities for recurring deposits. This allows businesses to seamlessly continue their investments without any manual intervention.

10. Can businesses avail of any tax benefits through recurring deposits?

Businesses may not directly avail tax benefits from recurring deposits; however, they can explore other investment options under different tax-saving schemes to optimise their tax liability.

Understanding the Role of Recurring Deposits in Corporate Finance

What are Recurring Deposits?

The Role of Recurring Deposits in Business Savings

Enhancing Corporate Investment Strategies