Investment Plans

Which is better investment for you: SIP Or RD

Nov 29, 2021

In the investment market, among many investment opportunities, following are the two most popular types of investment options—SIP or Systematic Investment Plan and RD or Recurring Deposit. 

But both these options show significant results in the long run for wealth creation. After a considerable time has elapsed since investment, the wealth corpus shows effective results. 

In the case of the SIP module, regularly setting aside a certain fixed amount on a monthly or quarterly basis, rather than investing a lump sum in a single shot. Whereas RD requires a predefined duration for investing a fixed amount every month. After the completion of the specified tenure, the investor receives the principal along with the interest.

What is Recurring Deposits (RD)?

It depends upon the choice of the investor, to select the tenure of the investment. This choice is dependent on the financial target and requirements of the individual. With the start of the plan, the investor is supposed to deposit the chosen amount every month for the selected span. The general trend shows that the minimum tenure is 6 months while the maximum tenure is 10 years. The RD plans do not impose too much load on the pocket of the investor and are simple to use with minimal risk involvement.

What is a Systematic Investment Plan (SIP)?

These are mutual fund investments that are done either on a monthly or a quarterly basis. The minimum investment amount can be a meagre INR 500. Based on the choice and policies of the selected plan, it depends on the fund managers to allocate the investment into either equity or debt. The market trends reveal that equity mutual funds assure better returns when compared to fixed deposits or recurring deposits. 

Comparative study of RD and SIP

Topic 

RD

SIP

Interest rates

Ranging between 7% and 8 %. Senior citizens are offered a slightly higher percentage.

Last 5 to 10 years records show that the returns generated by the SIP mutual funds range between 12% and 22%.

Investment Scheme

The deposit plan offers a constant rate of returns. Moreover, flexible RD scheme facilities are also available.

Depending on the risk appetite of the investor, the choice is done between the debt funds and the equity funds.

Returns

There is no ambiguity regarding the returns and everything can be calculated during the time of investment.

The returns depend on the market performances and also on the type of fund selection.

Tenure

The maturity of the RD ranges from 6 months up to 10 years. 

The minimum tenure is 6 months. However, there is no upper limit.

Risk factor

RDs are considered to be one of the safest modes of investments, with minimal risk involvement.

There exists the risk for the capital as the SIP returns are dependent on the stock market performances. There is no fixed guarantee or assurance of returns in this sort of investment.

Liquidity

RDs are liquid funds yet premature withdrawals imply penalty charges.

Can be closed anytime without any sort of penalty charges.

Taxation

The principal RD amount or the interest earned on it does not receive any sort of tax redemption.

SIP investments and returns that are done only in ELSS funds are eligible for tax redemption facilities under section 80C.

Instalment frequency

RDs are fixed with the monthly modes.

Offer flexible instalment plans ranging from daily, weekly, monthly or quarterly.

Where to Invest: RD Vs SIP?

The key to successful investing is to diversify investments. Therefore it is best to choose and consider both these options while making investments. All plans possess their individual pros and cons. It depends on the risk appetite and the financial aim of the investor to determine the ratio between investing in these two modules—RD and SIP. But, whatever be the choice, careful consideration of all the relevant factors are essential for the best interest.

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