Systematic Investment Plan (SIP) vs Recurring Deposit (RD)

SIP vs RD, two popular saving plans which serves the purpose of long term wealth creation. SIP, mutual funds investment plan. RD, recurring deposit in banks.

20 Dec,2016 06:45 IST 2244 Views
Systematic Investment Plan (SIP) vs Recurring Deposit (RD)

SIP and RD are two popular saving plans among retail investors, which serves the purpose of long-term wealth creation. SIP is an investment plan in mutual funds, on the other hand, RD is a recurring deposit in banks. But still, they have many differentiations. To make prudent decision investors should evaluate the differences between SIP and RD. Some of the distinctions between SIP and RD are mentioned below.

  Systematic Investment Plan (SIP) Recurring Deposit (RD)
The frequency of investment Investors can invest a small amount on the weekly, monthly and quarterly basis as per investors’ choice. In RD, investors can only invest a fixed amount on monthly basis.
Investment choice Investors have options to invest in different schemes. They can invest in equity or debt schemes based on their risk appetites. There are no investment options in RD. An investor has to invest fixed amount on monthly basis for a fixed return.
Tenor There is no tenor for SIP; investors can do it for any period. However, the minimum period should be of 6 months. RD has a maturity date. The minimum tenor is 6 month while investors can do RD for maximum 10 years.
Return Returns on SIP are not fixed as they are market-linked. In last 10 years, equity mutual fund has generated a return of 12%-14% p.a. and debt mutual fund has given a return of 8%-9% p.a. Returns on RDs are fixed and are known to investors at the time starting an RD.
Liquidity SIP offers high liquidity as compared to RD. The money can be withdrawn anytime however Investors have to bear exit load if they are redeeming with 1 year. RD is also liquid in nature. However, an investor has to pay pre-withdrawal charges for making any early withdrawals.
Risk Mutual Fund investments are risky as returns depend on market performance. Thus investors can lose their invested capital. Debt mutual funds investments are less risky compared to equity mutual funds. RD is a safe investment product as it is deposited in banks and there is no risk of capital loss.

Investors should do investments in order to allow their investments to grow and generate better returns while considering their risk appetite. SIP allows investors to invest a small amount on a weekly, monthly or quarterly basis as per their convenience. Mutual funds investments offer the advantage of selecting a scheme like debt or equity scheme based on the risk profile of an investor. On the other hand, investment in RD’s is to be done on monthly basis and earns a fixed rate of interest.

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