SIP vs RD — Which One is Better?
For those seeking to create wealth in the long run without a lump sum investment, SIPs and RDs are among the two popular ways. This, however, has also made people curious about the difference between SIP and recurring deposits (RDs). While RD is a savings scheme that requires monthly payments, SIP involves contributing a fixed amount at fixed intervals for investment in mutual funds. read more
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What is an SIP?
Systematic Investment Plans (SIPs) present an investment route for mutual funds. Here, you can contribute a fixed amount at regular intervals, say monthly, quarterly, half-yearly, or annually.
SIPs help you achieve your investment and saving goals without impacting your regular budget and financial obligations. They are also popular due to their convenience and assistance in developing financial discipline. With their professional management, SIPs are also good for beginners.
What is RD?
Recurring Deposits (RDs) are an investment option where you invest a fixed amount every month for a particular period. As a type of term deposit, RDs are available with banks or financial institutions.
As the rate of interest gets calculated on a compounding basis, these schemes also help you gain returns over time. However, as the returns are fixed and not linked to the market, the scope for higher returns is minimal.
Here’s a quick overview of RDs —
- Fixed returns
- Option to start with a low initial investment amount
- Interest rates usually higher than regular savings accounts
- Lock-in period — usually in the range of 3 to 6 months
- Premature withdrawals as per the bank
- Minimal risk
- Funded periodically via standing instructions
- Overdraft facility may be available
To invest in an RD, you can connect with your bank.
What is the Difference Between RD and SIP?
To understand SIP vs RD which is better, refer to the table below —
|
Parameter |
SIP |
RD |
|---|---|---|
|
Frequency |
Monthly, quarterly, or semi-annually as per your convenience |
Usually on a monthly basis |
|
Investment Type |
Market linked |
Fixed |
|
Returns |
Not guaranteed |
Guaranteed |
|
Tenure |
None |
Usually between 6 months and 10 years |
|
Risk |
As per the type of mutual fund and the overall market condition |
No risk |
|
Liquidity |
Option to close an SIP and withdraw money any time (exit load may apply) |
Might involve pre-withdrawal charges or lock-in periods |
|
Best for |
Aggressive investors |
Conservative investors |
SIP vs RD — Which One Should You Choose?
As evident from the table above, there’s no fixed answer to the query of SIP or RD which is better.
If you want to invest in the market but don’t want to go for particular stocks, you can invest in mutual funds via SIPs. This also allows you to enjoy market returns without investing all your money at once. However, keep in mind that SIPs are inherently risky and there are no guaranteed returns.
On the other hand, if you are a conservative investor and don’t want even nominal risk, you can go for RDs. This investment route can provide you with good returns (higher than standard bank accounts) without any major risk.
Who should invest in SIPs?
Anyone looking to create wealth through the stock market without taking too much risk can invest in SIPs. As various types of SIPs are available, they are suitable for both conservative and aggressive investors.
How do RDs perform when it comes to returns?
RDs offer guaranteed returns that are mostly higher than those of regular savings accounts.
Is RD a good investment option?
This depends on what you need from investments. If you’re looking for no-risk investments, RDs certainly present a good investment option.
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