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SIP or RD: Which Suits You Better in 2020? Research Team | Posted On Thursday, February 13,2020, 05:08 PM

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SIP or RD: Which Suits You Better in 2020?



While the 21st century has seen many financial crisis and fiascos, it is certain that people are concerned about saving money. The historical 2008 global crisis led to permanent insecurity in people, when it comes to putting their money in, even though rewarding, volatile investment options.

This brings us to the question, where to invest your hard-earned money so that both capital preservation and capital appreciation are realized?

The two most popular investment options which ensure both the above-mentioned goals are FD and RD. SIP is an excellent way of investing in mutual funds. You invest small amounts regularly each month in a mutual fund scheme of choice.

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SIP or RD: Which Suits You Better in 2020?

Here are some insights into SIP and RD;

Systematic Investment Plan (SIP)

A SIP is an organized way of investing in mutual funds and allows investors start small in the funds of choice. With the introduction of SIP, mutual fund investing has revolutionized in India. It has opened a gateway to several investment opportunities that were otherwise restricted to major players.

See Also: SIP vs Lump Sum: Which is Better?

SIP allows an investment in mutual funds on a weekly, monthly or quarterly basis with a minimum amount of just Rs 500. The investors build up their investment portfolio diversified across sectors and make regular contributions to enjoy long term wealth.

SIP works on two major principals- Rupee Cost Averaging and Compounding. The longer you stay invested, the higher the returns.

Recurring Deposit (RD)

A Recurring Deposit is an investment that comes with fixed returns just like a bank FD. The investors can make monthly deposits in the RD instead of lump sum like FDs.

The tenure of a recurring deposit can vary from a minimum of six months to a maximum of 10 years. A recurring deposit is one of the safest investments and comes with a fixed return percentage; irrespective of the market fluctuations and corrections. RDs offer returns similar to FDs.

See Aslo: Pick the Right Amount to Invest in SIPs

SIP or RD: Which One to Choose?

Choosing between SIP or RD can be quite a task as both of them have potential benefits. Several factors help in deciding between the two, these are:

1. Risk

Risk in investing is at two levels - investor level and instrument level.

Investor level: The risk at the investor level is also called the risk profile. Depending on risk appetite, investors can be divided into two broad categories:

  • Conservative investors: Investors who have low risk tolerance and are comfortable investing in low-risk instruments that primarily account for capital preservation and moderate appreciation.
  • Aggressive investors: Investors who have a high-risk tolerance and are ready to explore high return instruments. The primary goal of aggressive investors is to generate wealth from their investments.

Investment level: While mutual fund SIP carries some risk, RDs are totally risk-free instruments.

See Also: How To Start SIP Investment?

If you are a strictly conservative investor who cannot bear even the minor corrections over the period of investment, then RD suits you best. If you are a moderately aggressive investor who is ready to take calculated risks, then you must go for SIP in mutual funds

2. Return Expectations

Depending on your return expectations, the choice can be made between SIP and RD. If you are expecting a fixed amount of return then RD can serve the purpose better; but if you are ready for volatility then you must go for SIP. Invest in SIP of mutual fund for long-term returns.

3. Withdrawal

In case of RD, premature withdrawal is possible but there are penalties. Depending on how early you make the withdrawal, penalties are decided.

In case of mutual fund SIP, liquidity is higher as you are free to withdraw your money anytime and most of the fund houses have taken off exit loads from their schemes. However, in some cases, a withdrawal made before completion of a year could be penalized which generally is the case with equity funds.

See Also: A Five-Minute Guide to the Systematic Investment Plan

4. Taxes

Taxes are an important factor to consider while making an investment. ELSS enjoys the Section 80C tax deduction. The interest earned on RDs and FDs is taxed. Taxation is at marginal rates.


It is always better to take expert guidance in case of problems faced while investing. As a general rule, risk appetite and investment goals play an important role in such cases.

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