Systematic Investment Plans and recurring deposits are two popular ways in India for wealth creation over a more extended period. While SIP involves setting up a fixed amount at fixed intervals for investment in mutual fund schemes, RD is a savings scheme requiring monthly payments.
Those looking to build a significant corpus through payments at regular intervals can opt for either RD or SIP. The following sections include an analysis of SIP vs RD to help individuals choose the most preferred option.
Difference Between SIP and RD
Here is a tabular representation laying out the differences between a recurring deposit and a Systematic Investment Plan:
| Parameters | Systematic Investment Plan | Recurring Deposit |
| Investment Type | Individuals invest their money in a mutual fund scheme at fixed intervals such as quarterly, monthly, or semi-annually. | Investors will have to pay a certain amount each month. |
| Returns | The mutual funds SIP returns have been varying between 12% and 22% for the past 5 to 10 years. Note that the returns are not guaranteed. | The interest rates have varied between 5% and 9%. There are special rates applicable for senior citizens. Returns are fixed because RDs come with fixed interest rates. |
| Tenure | SIPs do not have any specific tenure. | The maturity period of RDs lies anywhere between six months and 10 years. |
| Scheme | Investors can invest in equity or debt funds based on their investment objectives and risk-bearing capacity. | Those looking for flexibility can opt for flexible RDs. |
| Risk | The risks associated with SIPs will depend on the type of mutual fund one picks and the overall market condition. However, one can avert such risks by investing over an extended period. | This is one of the safest options for investment. There is practically no risk involved with recurring deposits. |
| Taxation | Taxation is applicable on one’s STCG and LTCG. | Income received from recurring deposits is not eligible for tax exemption or deduction. Instead, the earnings are taxed per the tax slab applicable to the individual. |
| Liquidity | SIP offers comparatively better liquidity. One can close an SIP and withdraw money anytime. However, they may have to pay an exit load if they redeem the units before a specific period. | Recurring deposits also provide liquidity, but it involves payment of pre-withdrawal charges for premature withdrawals. |
| Suitable for | This is suitable for both conservative and aggressive investors. | This is most suitable for conservative investors. |
RD vs SIP: Which one to Choose?
Systematic Investment Plans and recurring deposits are pretty popular instruments for wealth creation. However, the two most significant factors individuals usually check before investing their money are risk factors and returns generated.
While RDs are a highly secure investment option, some risks will be associated with SIP investments. That said, mutual fund SIPs can easily cater to individuals with varying risk profiles.
Regarding returns, RDs generate a fixed income as per the interest rate the banks decide. On the other hand, income from SIP will vary as the returns are not selected and usually depend on the market conditions, types of securities invested in, etc.
A recurring deposit would be ideal for conservative investors who are not keen on taking risks. On the other hand, a mutual fund SIP can be a viable option for both conservative and aggressive investors as it is designed for investors with different risk appetites.
However, before choosing between SIP and RD, investors need to know their investment objectives and risk appetite. This will help them to make an informed choice.
Along with this, you can first calculate and plan your investments with the SIP or Online RD Calculator. Such a tool can prove to be of great assistance in computing how much should you invest to avail yourself of a certain return in future.
Final Word
The comparative analysis of the Difference between SIP and RD will help individuals confidently choose an investment option that will help them fulfil their financial goals.
FAQs
RDs are risk-free investments while SIPs are subject to market risks. The potential returns of mutual fund SIPs compared to RDs are higher. Mutual funds also enjoy considerable tax advantage over RD. That answers the question, SIP or RD which is better.
Which is better, SIP or recurring deposit? ›
SIPs (Systematic Investment Plans) and RDs (Recurring Deposits) are popular investment options. SIPs are ideal for long-term goals, offering potentially higher returns with market exposure, while RDs suit short-term goals with fixed interest rates and capital preservation.
Which is the best option for SIP? ›
Top 10 Best Mutual Funds SIP to Invest In India
- HDFC Mid-Cap Opportunities Fund.
- Parag Parikh Flexi Cap Fund.
- ICICI Pru Bluechip Fund.
- HDFC Flexi Cap Fund.
- Nippon India Small Cap Fund.
- HDFC Balanced Advantage Fund.
- ICICI Prudential Equity & Debt Fund.
- ICICI Prudential Corporate Bond Fund.
SIPs offer the potential for higher returns over the long term compared to FDs, which typically offer fixed returns but lower potential growth. But it it important to note that there are potential risks involved while investing in mutual funds via SIP as well, since they are market linked.
What are the disadvantages of SIP? ›
SIPs may be risky if you choose equity funds and less risky if you choose debt funds. What are the disadvantages of SIPs? SIPs may be exposed to market risks. Additionally, SIP investments in mutual funds may also carry added costs like entry or exit loads.
What is better investment than SIP? ›
No Systematic Investment Commitment: Unlike SIPs, lump sum investments don't require a commitment to regular, fixed contributions. Investors have the flexibility to make a one-time investment based on their financial capacity and market outlook.
Is SIP 100% safe? ›
Is SIP safe or not? SIP is a very safe method to invest in mutual funds. If you invest in a mutual fund lump sum, depending on the market condition, you could end up paying a very high price for a mutual fund. To avoid this, you should invest in mutual funds when the markets are not overvalued.
What are the risks of systematic investment plan? ›
Fluctuations in market conditions can affect the performance of the fund, leading to variations in returns. No guarantee of returns: While SIPs mitigate the risk of market timing, they do not guarantee profits or protection against losses. The returns are dependent on the fund's performance, which can vary.
How long should I stay invested in SIP? ›
For maximum returns, one should continue with their SIP investments for the long term, ideally 5-10 years or more. This allows the power of compounding to work and helps to mitigate the impact of short-term market fluctuations. Regularly reviewing the investments and making adjustments when necessary is also important.
What happens if SIP fails? ›
Your SIP will continue and will continue from next instalments. However, if you miss your SIP payment two consecutive times, then it may lead to termination of your SIP. Your investments may be sold off at the latest price and money will be credited back to your bank account.
An SIP doesn't offer you assured or guaranteed returns. Your returns depend entirely on the performance of the scheme you are investing. SIPs just allow you to invest in the scheme regularly.
Which is better SIP or fixed deposit? ›
If your primary investment goal is capital preservation and you do not expect high returns from it, you can invest in an FD. If you want to make goal-oriented investments which would fetch you higher returns, invest in a SIP. If you have a fixed investment term in mind, you can invest in a fixed deposit scheme.
How much is 5000 per month in RD for 5 years? ›
How much for 5000 per month RD for 5 years? if you are starting a RD account for 5 years with a monthly contribution of Rs.5000 and the applicable interest rate is 7%, then after 5 years you will receive Rs.3,59,663 as a maturity amount.
Is it better to SIP daily or weekly or monthly? ›
Studies have shown that SIP frequency, be it daily, weekly or monthly, has no major impact on returns. The difference in returns between daily, weekly or monthly SIPs is negligible over time. However, you could struggle to monitor your investment if you opt for daily SIPs over monthly SIPs.
Which is better monthly SIP or one time? ›
SIPs are a better option for those looking for long-term investments, while lump sum is good for short-term plans. Get Latest Business News, Stock Market Updates and Videos; Check your tax outgo through Income Tax Calculator and save money through our Personal Finance coverage.
