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SIP or RD: Which One is a Better Option for You? Research Team | Posted On Saturday, January 18,2020, 05:27 PM

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SIP or RD: Which One is a Better Option for You?



Investing is the best way to grow your surplus funds and generate an income. Two such investment products are RDs and SIPs. Both of them allow investors to grow their money through regular investment instead of a one-time payment. The question here is which one is a better option for you? Let’s discuss:

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What are Recurring Deposits?

A recurring deposit is a risk-free investment scheme offered by banks wherein you can contribute a fixed amount every month and gain good returns through interest income and compounding. After the inception of the scheme, you must invest a fixed sum over the tenure of the RD.  It is a lucrative option for investors as they have the flexibility to choose the investment tenure and the investment amount. The Interest rate on RD is decent and you can earn an income by channelizing your surplus funds into an RD account. It is an investment option for all types of investors who want capital protection along with risk-free returns. However, RDs are not tax-efficient and you have to pay TDS if the interest income exceeds Rs. 10,000 in a financial year.

See Also: Post Office Recurring Deposit Account

What are SIPs?

A SIP is a scheme that allows you to invest in mutual funds. You will have to deposit a fixed sum at regular intervals once you enroll into mutual funds through SIP. Through SIP you can allocate money into your favourite mutual fund schemes. SIP mutual fund schemes are known to generate high returns by taking advantage of rupee cost averaging. The returns generated by SIP mutual funds have been around 12% to 22% for investment tenure 5 to 10 years.

Thus SIP s is a systematic approach to manage your investments. The plans are almost similar to RDs where you make an investment now to reap the benefits in future.

See Also: Recurring Deposits - How to Reap Maximum Benefit from Them

RD vs. SIP - The Product Structure:

Recurring Deposits:

If you opt for a recurring deposit scheme then you must first choose the investment tenure and decide the amount of money you want to contribute monthly. Once the scheme starts you have to continually pay the specified amount throughout its tenure. You can opt for ultra short-investment tenure of 6 months and can go up to maximum investment tenure of 10 years. The interest rate on RDs usually varies from 7 to 8% and senior citizens are eligible to get a slightly higher interest rate than normal investors. RD is a popular option among investors belonging to the low and moderate-income group as it is gentle on the pocket and does not contain complex terms. Moreover, the risk is significantly low on RD investments. The interest rates are decided based on the tenure of investment and the amount deposited each month.

One of the major drawbacks on RD investment is that it is not a tax-efficient option. Income generated from an RD is included in the amount that you declare for the tax liability. Also, TDS is applicable on the interest income if it above Rs. 10000 yearly.

See Also: How to Save Money with PAYTM Recurring Deposit and Flexible RD?


You can invest through SIP option if you are interested to invest in mutual funds. The SIP investment plan offers investors the flexibility to contribute a specific sum of money at regular intervals i.e. quarterly or monthly basis. You can choose a mutual fund scheme and start contributing through SIP. Depending on the scheme you have chosen the fund manager will allot your contributions in equities and debt and gives you returns based on rupee cost averaging and compounding. You can start a SIP with a minimum monthly contribution of Rs. 500. By evaluating the past performance of the SIP mutual funds we can say that it is an efficient investment product that gives returns ranging from 12% to 22% over a long investment horizon.

One of the major drawbacks of SIPs is the fact that you are not guaranteed of any income even though you continue to invest regularly. Moreover, you can lose a considerable sum of money if the share market crashes. Also, you have to invest for a significant time period i.e. 10 years and above to yield good returns.

See Also: Fixed Deposit vs Recurring Deposit: Which is the Better Option?

Which is a Better Option, Recurring Deposits or Systematic Investment Plan?

As an investor, you can choose either SIP or RD or both the options at the same time. Both the products allow you money to grow through regular investment. The main difference lies in the fact that one is meant for risk-averse investor and the other is for investors who want to get high returns while taking a risk. Thus decide between both the options depending on your risk-bearing ability.

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