SIP Vs RD: Which Option Is The Best?
- Finance 101

SIP Vs RD: Which Option Is The Best?

Each investment type is different and has different things that you can get from it. So, when you analyze the investment types, choose the one that best suits your financial needs. But, first, you should understand both investment types and sort out the difference between them.

Recurring Deposit:

A recurring deposit is an investment similar to that of a fixed deposit. When you are a person who can invest small amounts monthly, then a recurring deposit is the best choice for you. For example, if you support the same amount for a fixed tenure at a fixed interest rate, it’s a recurring deposit account. 

The interest rate for a recurring deposit is higher when compared to other investment types. A recurring deposit is a safer investment option than a fixed deposit as it doesn’t depend on the market for its changes. When you have goals that you want to fulfill within a particular time, you can easily save for them with a recurring deposit.

Systematic Investment Plan:

A Systematic Investment Plan (SIP) is a planned investment tool for investors willing to take a risk with their investment. With SIP, the investor can invest a small amount towards the market monthly or quarterly. It is almost similar to a fixed deposit as we will invest a fixed amount each time. 

But it will help you systematically manage your investments and keep your focus on your finances and investment. SIP is an investment that depends on the market changes for its returns. So when you are a person who is ready to take a bit of risk, then this investment is your best choice.

RD Vs. SIP – The Investment Structure:

Recurring Deposit:

When you invest in a recurring deposit, you will have to choose a fixed amount while you start your investment. The amount you choose will be the investment amount till the tenure ends. Typically, the duration of the recurring deposit investment will range from six months to ten years. 

Depending upon your financial plans and needs, you can choose the tenure of your recurring deposit investment. The risk in this investment is NIL to very low because it doesn’t depend on the market changes for its returns.

The interest rate for a recurring deposit depends on the amount you invest and the tenure you choose. Many financial providers offer recurring deposit investment options for individuals who require to build their investment portfolio. 

When you research thoroughly and use the online recurring deposit calculators available, you can easily filter out the recurring deposit options that you can get. Then, when you get all the values, you can easily compare and find out the one that provides a higher interest rate and other benefits.

The only drawback for this investment type is that it doesn’t come under the tax scheme. So the investment that you gain with this investment will sum under the tax. But you can apply for a TDS for your recurring deposit interest amount if it exceeds Rs.10,000. 

Systematic Investment Plan:

When you invest with mutual funds, then it means you are investing in a Systematic Investment Plan. A SIP or Systematic Investment Plan is related to mutual funds and depends on the market for its returns. 

The minimum amount that you can invest with a SIP is Rs.500. Unlike a recurring deposit, the investment tenure and frequency can be monthly or quarterly, depending on your requirements. Depending on the schemes you choose, your SIP investment move towards equity or debts.

The most important positive point is that when compared to a recurring deposit, the interest rate will be constant. At the same time, an SIP has a variable interest rate that depends on the market for its ups and downs. The returns you gain with SIP mutual funds can range from 12 to 22% as per the last 5 to 10 years’ results.

The critical drawback against a SIP is that, though you make a regular investment, you can’t be sure about the returns that you can get with it. When the stock market crashes, it will reflect highly on your SIP and change the amount you can receive from it. The most important thing with a SIP is investing for a longer duration to get higher returns.

Which Is The Best Option? SIP Or Recurring Deposit:

Here is a tabulation that will help you determine whether a SIP or a recurring deposit which investment option is the best:

Factors Systematic Investment Plan (SIP) Recurring Deposit (RD)
Type Of Investment When you choose a SIP for mutual funds, you can choose whether to invest with debt or equity. You can choose it depending on the risk you can take towards that investment. When you invest with an RD, the amount you invest doesn’t depend on any market-related changes. So the amount you invest will be the same as that you get when the tenure ends. Also, you have flexibility in choosing the scheme and duration of your investment.
Risk A Systematic Investment Plan has variable returns options. You can expect risk on the capital invested and the returns you can avail of with this investment. Depending upon the latest market fluctuations, you can expect changes with this investment. Only when you are ready to invest for the long term, this policy will suit you.  Recurring deposit investment options don’t depend on the market for its changes, so they will likely come under any risk. However, the invested amount and the returns that you get with this investment are safe. 
Investment Type You can invest your SIP towards mutual funds on a frequency of daily, monthly, weekly, quarterly basis. The number of times you can support doesn’t have any particular order.  With a recurring deposit, you have to make sure to invest the same amount each month until the tenure ends.
Liquidity When you think about the liquidity factor, an SIP is a better option than a recurring deposit. You can close your SIP anytime you want without any penalty.  With a recurring deposit investment, you have to pay the penalty to cancel and withdraw the acquisition before the tenure ends.
Returns Depending upon the equity and debt fund markets, your returns for a SIP will vary. But you have an option to choose whether you want to invest with equity and debt funds.  The returns that you can avail of with a  recurring deposit will not depend on the market for its returns. So the returns that are estimated while the investment starts will be the same throughout the tenure. 
Investment Goal Whether you have a short, average, or long-term goal, a SIP can help you with any tenure options you want to choose.  Whereas with a  recurring deposit, you can either have a short or long-term goal, and that you can choose from the criteria the financial provider offers you. 
Investment Frequency There is no set of rules regarding the frequency at which you can invest in a SIP. Therefore, you have flexibility in choosing the investment frequency, and it can be daily, weekly, monthly, quarterly or annual, depending on your financial needs. With a recurring deposit, you have to make monthly investment installments without fail. 
Taxation A SIP is where the investment amount and the returns you gain come under tax exemption, so you choose ELSS and make sure to avail it.  With a recurring deposit, the interest that you gain shouldn’t exceed Rs.10,000. If you have it higher, then you have to apply for TDS towards your interest gained.

From the above table, you now would have understood that a recurring deposit is a better investment option than that of a SIP. So analyze well and choose the investment type that best suits your investment portfolio and succeed. 

SIP Vs. RD: Which Option Is The Best?

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