How Is SIP Investment Different from RD?

To set aside a certain amount of money every month for the purpose of savings or investment is a great option for creating wealth in the long run. Both SIPs (Systematic Investment Plan) in mutual fund schemes and RD (Recurring Deposit) are the two most famous ways of investing a fixed amount of money every month.

How Is SIP Investment Different from RD?

 In a typical SIP, the investor has to set aside a certain amount of money either quarterly or monthly. It saves the investor the need of investing a lump sum. On the other hand, in an RD (recurring deposit), the individual needs to deposit a certain amount of money for a certain period of time. At the end of the deposit tenure, the individual gets back the deposited amount along with some interest.

SIPs (Systematic Investment Plan)

The SIPs can be opted by making investments in some lucrative mutual fund schemes.

Returns from the SIPs: When you would invest in any SIP scheme, on the basis of your choice, the mutual fund scheme would allocate the money into debt or equity. The equity mutual funds have generated higher returns in the last few years. In some cases, the returns have been around 20-22 percent. Thus, the SIPs are a great option for generating higher returns in the long run.

Taxation on the SIPs: If the investor holds an equity mutual fund SIP, then there are no capital gains if the investor would hold on for more than one year. This makes the investors tax free. Thus, SIPs serve as a great investment vehicle for the investors.

Recurring Deposits (RD)

The investors can invest in the recurring deposit accounts either in banks or post offices. Several individuals tend to prefer the option of investing on a monthly basis through chit funds. However, the banks and post offices account options are more reliable and secure.

Returns on RD (Recurring Deposits): The investors get assured returns on the recurring deposits. They are aware of the rate of interest and can thus, make an estimate of the overall returns they would obtain over the long-term period. One of the best features about the recurring deposits is that the investors can make the investment by acknowledging the corpus that they would wish to build for themselves. For instance, if an investor would wish to build a corpus of say, 3 lakhs INR for the marriage, then he or she would know exactly how much amount of money need to be deposited. This is unlike the SIP in which there is no assurance of the same. Moreover, the bank and post office recurring deposits are highly safe and reliable.

Taxation on the Recurring Deposits: The recurring deposits mode of investment is not tax efficient. This implies that the investors are liable to a certain amount of tax upon investing money into the same. Interest income generated from the recurring deposits is added to the total income of an individual. This is done for the purpose of declaring an individual’s tax liability. In addition to this, there is a TDS formulation as well in the current scenario. Under this scheme, TDS would be applicable on all the recurring deposits if the interest income of an individual would exceed 10,000 INR.

If you are willing to take the risk of investment upon no fixed assurance of the returns, then SIP is a perfect option for you. SIP calculations are also stress-free with SIP calculators provided online. You can use the calculator here. On the other hand, if you are averse to risk and wish to be assured of the returns on a long-term basis, then you must go for depositing money into the recurring deposit schemes. Either case, you will be generating wealth for yourself.