Recurring Deposit (RD) and Systematic Investment Plan (SIP) are two prevalent investment options among retail investors. RD is a recurring deposit in banks. On the other hand, SIP is an investment plan in mutual funds. Though SIP and RD are both a popular savings plan, they have a lot of differences. To make wise decision, investors should evaluate the differences between these two plans and choose the one that best suit their investment portfolio.
Here’s a table that provides a comparative analysis between SIP vs RD
SIP vs RD
| SIP | RD | |
| Investment choice | In SIP investment, an investor can choose between debt or equity mutual funds, based on their risk appetite | In a RD scheme, an investor invests in a deposit plan that fetches fixed rate of interest. An investor can also opt for flexible RD scheme, if flexibility is what they desire |
| Frequency of the investment | Under SIP investment, an investor can invest in mutual funds on a daily, weekly, monthly, quarterly, or annually basis | RD schemes only permit investments in fixed amounts on a monthly basis |
| Returns | Returns are not fixed and are dependent on the debt and equity markets | Returns are known and fixed at the time of investment |
| Interest rates accrued | Average returns offered on an SIP scheme is around 12 to 18% when invested for a long term | The interest rates on a RD scheme varies from 7 to 8%. Senior citizens and super senior citizens are offered higher interest rates |
| Investment tenure | There is a no fixed tenor for SIP investments. An investor can choose to invest forever via a perpetual SIP | Recurring deposits have a maturity date. The minimum tenor for this investment option is 6 months, while the maximum horizon is ten years |
| Risk profile | In SIP, the risk factor is dependent on the type of mutual fund chosen. The risk under SIP investments can range from low, medium to high | RDs are a safe investment option and are not prone to risks |
| Withdrawal option | SIPs offer a higher degree of liquidity as compared to RDs. An investor can withdraw their SIP investment whenever they wish | Premature liquidity is offered by RDs. However, note that these are subjected to exit charges or penalties |
| Tax aspect | Investments in SIP attract long-term capital gains or short-term capital gains, depending on the tenor of the investment. Only investments in ELSS funds offer a tax deduction of up to Rs1.5 lac u/s 80C of the IT Act | The investment amount or interest accrued on RD is not exempted from tax |
| Investment goal | SIPs can help to cater all types of investment goals – short and long-term, depending on the funds chosen, investment frequency and other factors | RD schemes usually serve short-term savings goal and are not the greatest tool for long-term wealth creation |
If you are a risk-averse investor, then you might consider investing in safe investment havens such as RD. However, if you are open to volatility in the markets to achieve higher returns, you should invest in mutual funds via SIP. Happy investing!
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