SIP vs RD: If you want to put a part of your income in a savings account, then it is important to invest the money in the right place. In such a situation, the question arises whether to open a recurring deposit (RD) in the bank or start a Systematic Investment Plan (SIP). Both bring discipline in the habit of saving, but their methods are completely different. Let us understand in simple language which scheme is right for whom among SIP and RD.

What is SIP?

Systematic Investment Plan (SIP) , this is a way of investing in mutual funds, in which you put a fixed amount every month. It can start from Rs 500 as well. SIP is completely linked to the market, so its returns can fluctuate over time. But if you invest for a long time, then due to compounding and growth of mutual funds, you can get good returns.

A big advantage of SIP is that it facilitates diversification (investment in different companies), which reduces the risk. This is a better option for those who are willing to take a little risk and want to grow their money over time.

What is RD?

Recurring Deposit ( RD) is a banking product in which you deposit a fixed amount every month. It can be opened in a bank or post office. The interest received on RD is fixed, which usually ranges between 6% to 8%. The maturity amount in RD is known in advance, so it is an option that gives safe and predictable returns. However, the interest earned from RD is taxable and TDS is deducted if the annual interest exceeds Rs 10,000 . But for investors who are risk averse, RD is a good option.

Benefits of SIP

SIP helps in creating a large fund in the long run. One can start by investing a small amount every month, and through compounding this amount can become large. SIP is also a great option for tax saving, especially investing in ELSS funds gives tax exemption. Also, it is a flexible way of investing, it can be stopped or increased anytime.

Benefits of RD

The biggest advantage of RD is fixed and risk-free returns. In this, you get a fixed amount on maturity. Senior citizens get higher interest in this, which makes it very beneficial for older investors. The process of opening an RD is also very easy. Once the standing instruction is set, the money is automatically deducted every month. This is a great tool for short term financial goals.

SIP or RD: Which scheme is better?

Now the question is whether SIP is better or RD? The answer depends on your financial goals. If you are investing for a long term, like children’s education, retirement or planning to buy a house, then SIP can prove to be better. The benefit of growth and compounding of mutual funds is available in the long run. At the same time, if your goal is short term, like buying a bike in 2-3 years, going on a trip or making down payment for a house, then RD is better for you.

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