Are you having a hard time choosing between an SIP and recurring deposit for investment? If yes, then read on to find the differences and benefits of both investment avenues and to make an informed decision.
SIP and recurring deposit are the two most famous investment instruments for Indian retail investors. Even though both these methods have their advantages, it is easy to get confused about which choice to make while investing. Let us compare the two plans and consider different aspects to make the right choice.
What is SIP?
SIP or Systematic Investment Plan is a method of investing a small amount of money regularly in the form of mutual funds. This is an organised or as the name suggests, systematic way to invest your money on a quarterly or monthly basis. This plan is often equated to planting a seed and waiting for the tree to grow and bear fruits in a few years.
Benefits of SIP (Systematic Investment Plan)
- Minimum Amount: The minimum amount that you must deposit in SIP is as low as Rs. 500 per deposit which makes it a pocket-friendly mode of investment.
- Discipline in Investing: Investing in SIPs brings a certain discipline into your investing habits and approach. It helps you keep track of your earnings and expenditure and gives a clear picture of your savings. Investing regularly in SIP can help you reach your goals quickly.
- Flexibility: In case of an emergency, you can stop investing in a SIP at any point in time. This makes it easier to trust and reduces the risk factor. Some mutual funds also let you redeem your investment without charging penalties.
- Rupee Cost Average: This feature ensures that when the market is high you will get fewer units and when it is low, you will get more units to balance out your investment.
What is a Recurring Deposit?
Now, let us look at RD or recurring deposit which is another popular tool of investment. Recurring deposit is a unique scheme that allows you to set the deposit amount as well as the tenure. You may select a tenure as short as six months or as long as 10 years according to your preference. This feature makes an RD a suitable form of investment which also consists of lower risk.
Benefits of a Recurring Deposit
- Minimum Amount: The minimum amount you need to deposit in RD varies from bank to bank and the lowest is Rs. 10. You can open an account with that small amount if you invest in a recurring deposit.
- Assured Returns: The interest that you get on a recurring deposit is fixed throughout the tenure and is paid to the investor upon maturity. This ensures assured returns on an RD as compared to a SIP.
- Interest Rates on RD: You may not know that almost renowned banks such as IndusInd Bank offer the option of an RD. Therefore, the rates of interest offered on a recurring deposit are highly competitive. The average interest rates range between six to seven per cent in most banks. Senior citizens can avail higher rates as compared to the regular interest rates.
- Short Term Investment: A recurring deposit is ideal for any short term financial goals that you may have and is a risk- free investment instrument.
SIP and recurring deposit have some big similarities in their nature and yet, there are some fundamental differences that cannot be neglected. While RD is a risk-free investment tool, SIP is prone to market risks. However, mutual funds also provide a tax advantage that is not available in RD.
Hence, SIP and RD are both good avenues of investment, you must make your choice based on the nature of your goals and future endeavours. However, if you are planning to invest in RD, get in touch with IndusInd Bank to learn more about the investment option and understand the benefits.
Krishna Murthy is the senior publisher at Finance XOD. He is not only the senior publisher but also the owner of Tricky Finance. Krishna Murthy was one of the brilliant students during his college days. He completed his education in MBA (Master of Business Administration), and he is currently managing the all workload for sharing the best banking information over the internet. The main purpose of starting Tricky Finance is to provide all the precious information related to businesses and the banks to his readers.