Everyone knows how to earn money. But very few people know how to invest properly. If you are thinking about how to save Rs 5,000 every month and turn it into a lakh, then there are many investment options. Among these, you can invest in Post Office Recurring Deposit (RD) and Systematic Investment Plan (SIP).
Both are good investment options, but their returns over five years can be different. If you invest Rs 5,000 monthly, how much will you get after five years and which option can be better.
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How much will you get if you invest Rs 5,000 in Post Office RD scheme?
Post Office offers various schemes and Post Office RD is a safe investment that provides guaranteed returns. Currently, the interest rate on RD is 6.7% per annum, compounded quarterly. If you invest Rs 5,000 in an RD every month, then the total investment in 5 years will be Rs 3.5 lakh. You will get an interest rate of 6.7%. This means that after 5 years the total amount will be Rs. 3,56,830. The biggest advantage of RDs is that they are risk-free and provide guaranteed returns. They are ideal for those who want to make a safe investment.
What is the return on your investment of Rs 5,000 through SIP?
SIP, or Systematic Investment Plan, allows investors to invest small amounts over time into market linked mutual funds. While the rate of return is not guaranteed, there is great potential for the investor to realize substantial profits as they build up their investment portfolio. Investment experts report that SIPs have historically provided average annual returns of approximately 12%.
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If you were to invest Rs 5,000 monthly into your SIP for five years, you will have invested a cumulative total of Rs 3,00,000 after five years. If your SIP were to achieve 12% return over those five years, it would generate approximately Rs 1,05,518 in interest and your total investment value would be Rs 4,05,518. If the market performs well and you achieve greater than 12% return, your total investment value could be much higher; however, due to fluctuations in the market, your investments could generate lower than anticipated returns as well.
The biggest difference between RD and SIP is risk and return
In RD, money is completely safe, as it is guaranteed by the government. However, in SIP, there is risk. However, due to the power of compounding, they can provide higher returns. For example, with a 12% return, a SIP can earn you around Rs 48,688 more than an RD. If you are willing to take the risk and have a time horizon of five years, then SIP can be a good option. However, if you want guaranteed returns without risk, then RD is the right option.
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Remember, before investing in SIP, it is important to understand the mutual fund scheme and the market conditions. Investing in RD is easy and safe. Both options can help grow your savings.