RD Vs SIP

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Comparing Recurring Deposit vs SIP – which is better for you?

Key Takeaways

• A Recurring Deposit (RD) is a fixed monthly investment plan with fixed interest rates.
• A Systematic Investment Plan (SIP) is a method of investing in mutual funds in instalments at
• regular intervals.
• While RDs generate fixed returns, SIP returns may vary based on fund NAV and market fluctuations.
• RDs provide capital protection and are risk-free, whereas SIPs are subject to market risks.

When you invest money, you typically should have a checklist of your investment goals. You should invest based on general factors like your risk profile, investment objectives, and preferred tenures. You should also determine if you want fixed, steady returns or if you can brave market volatility for higher returns. Two of the most common investment options that help you create a corpus and earn decent returns include Recurring Deposits and Mutual Fund SIPs. Let us compare RD vs SIP to understand which is better.

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Recurring Deposit vs SIP – Meaning

Recurring Deposits

A Recurring Deposit (RD) is a type of deposit plan wherein you deposit a fixed sum of money every month in a term deposit for a preferred tenure. Individuals with regular monthly income, who wish to save money in a high interest-bearing deposit, usually opt for an RD. If you do not lump sum cash for a Fixed Deposit, then a Recurring Deposit allows you to create that lump sum, but in instalments.

SIPs

A Systematic Investment Plan (SIP) is a method of investing in Mutual Fund Schemes. With SIP, you can invest in one or more Mutual Fund schemes in instalments. You can choose your preferred investment tenures - weekly, fortnightly, monthly, quarterly, etc. With each SIP, you can buy fund units based on the NAV on the investment day/date. You could be allotted fewer fund units when the NAV of the fund is high and more units when the NAV falls.

Difference Between RD and SIP

Onboarding

You can open an RD with any bank or through your Savings Account. You can visit your bank or create the RD online through internet and mobile banking platforms. As for SIPs, you can choose your preferred fund house or AMC and invest via online banking services after completing KYC compliance.

Returns

Another point of comparison between RD vs SIP is the returns they generate. RDs generate fixed but lower returns based on the applicable interest rate. In contrast, SIP returns depend on market conditions and the type of mutual fund SIP you choose and can be higher in comparison.

Liquidity

RDs come with fixed lock-in periods. While you can opt for premature withdrawals, they may attract penalties. All Mutual Fund SIPs, except ELSS Equity Mutual Funds with 3-year lock-in periods, are significantly liquid. You can exit all mutual funds except ELSS funds before maturity.

Risk

RD is the safest investment vehicle since banks pay you a fixed rate of interest, and your capital amount remains unaffected. On the other hand, SIPs entail several risks, including market risk, concentration risk, volatility risk, and liquidity risk, etc., and may erode your capital.

Bottom Line

Now that you know the difference between RD and SIP, you can choose your preferred investment option. If your risk appetite is low, you should choose Recurring Deposits vs SIPs are best if you can brave market risks. Whatever investment you choose, ensure you determine your investment goals and risk profiles before investing.

Download DBS Bank app to get started with your SIP.

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*Disclaimer: This article is for information purposes only. We recommend you get in touch with your income tax advisor or CA for expert advice..