Which is Better SIP Or RD?
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.