Where To Invest Money - SIP vs Recurring Deposit?
07 Nov 2016
Nutan Gupta
Systematic Investment Plan (SIP) is a monthly investment in Mutual Funds while Recurring Deposit (RD) is a type of bank deposit. However, there are some basic differences between SIP and RD which one needs to understand before investing.
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SIP
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RD
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Investment |
One can invest in mutual funds through SIP which can be weekly, monthly or quarterly. |
RD is like a fixed deposit account where one can make monthly investments. |
Investment Scheme |
An investor has an option to decide on the equity or debt scheme, depending on his risk appetite. |
An investor has only one choice of the scheme - to invest in a deposit with fixed rate of return. |
Returns |
The returns in SIP depend on the performance of the equity or debt market.
Usually, SIP gives returns of 12-15%. |
The returns in RD are fixed and are known to an investor at the time of starting RD.
Usually, the returns in RD ranges between 7.1-8.5%. |
Risk |
As the returns in SIP depend on market performance, SIP carries some risk. However, research suggests that SIP has given positive returns over a longer period of time. |
RD is completely risk-free as the rate of returns are fixed. |
Liquidity |
SIP is a very liquid investment. One can close the SIP and withdraw money anytime without bearing any exit load. |
Though RD is liquid, pre-mature withdrawal charges may be applicable. |