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SIP vs RD: Which Investment Option is Good? Research Team | Posted On Monday, October 21,2019, 02:44 PM

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SIP vs RD: Which Investment Option is Good?



SIP vs RD: Which Investment Option is Good?

investing a portion of your income each month is a good way to generate wealth. If you want to save for a future goal and are in search of investment options, then here are two best tools that will ensure you attain your investment goals. SIP and RD are two convenient option for investors who want to go for regular investment rather than a one-time investment.

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What is SIP?

A SIP scheme allows you to invest in mutual funds. You will have to deposit a fixed sum at regular intervals once you enrol into SIP. You can begin with an investment as low as Rs. 500. SIP investment allows you to allocate money into your favourite mutual fund schemes. You can choose the scheme based on your risk appetite. SIPs are known to generate inflation-beating returns for investments made for a longer tenure. The returns generated by SIP mutual funds have been around 12% to 22% for the previous 5 to 10 years.

One of the main disadvantages of SIP investment is that even if you keep depositing the amount, nothing can be promised as returns are dependent on the stock market volatility. Investors end up losing money in case the share market crashes. Also, you may have to hold the funds for a longer tenure to get good returns.

See Also: Pick the Right Amount to Invest in SIPs

What is RD?

A recurring deposit is a risk-free investment avenue provided by banks where you can invest a fixed amount each month and gain good returns due to compounding. Once the pan starts you must invest a fixed sum each month over a fixed tenure. The recurring deposits allow investors the flexibility to choose their investment tenure and the investment amount.  The Interest rate on fixed deposit is moderate and they allow you to save money for your short-term needs. 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 year.

Differences Between SIP and RD:


Recurring Deposit

Systematic Investment Plan                           

Investment Scheme

The recurring deposit is a deposit plan that gives you a fixed rate of returns on the money you invest.

Through a SIP you can invest in your favourite mutual fund scheme by paying a fixed amount each month or quarter.

Risk Factor

Recurring deposits are one of the safest investment options. The returns on these investments are not dependent on market risk.

The returns on SIP are not fixed and it gives good returns on long term investment. however, there can be a risk of capital and returns as SIP investments are dependent on share market volatility

Investment Type

In a recurring deposit scheme, the investor has to deposit a fixed sum of money each month

Through SIP you can make investments in mutual funds. You can invest a fixed sum of money at regular intervals i.e. weekly, monthly or quarterly.  


The rate of interest is fixed on these types of investments. So the amount of returns you are likely to get at maturity is also fixed.

The returns on SIP are linked to the performance of the debt and the equity market. The returns are also based on the fund scheme chosen by the investor.


Recurring deposits have a fixed lock-in period. You may withdraw the invested amount prematurely in case of an emergency by paying a penalty. 

When compared to recurring deposits, SIPs have better liquidity. The money can be withdrawn as per the requirement of the investor


TDS is charged on the interest income on recurring deposits

The SIP investment and its returns are exempted from taxes only when you invest it in ELSS funds.

Instalment Frequency

In a recurring deposit, you have to make instalment payments each month

SIP offers the option of making flexible instalment payments. You can make payments weekly, monthly or quarterly in SIP

Investment Goal

RD allows you to save money for meeting your short-term goals. It is an ideal option to inculcate savings habits and does not help in long-term wealth creation.

SIP helps you to fulfil all types of investments goals. It gives inflation-beating returns based on the payment frequency, funds chosen and share market performance.

Benefits of SIP:

  • Discipline: A small investment that allows you to invest in mutual fund schemes. It allows a beginner to enter the equities market and inculcates investment and regular savings habits among investors.
  • Rupee Cost Averaging: To benefit from rupee cost averaging. When the market rates are high, you can purchase fewer units whereas you can purchase more units when the market rates are low. This way you can average out your total investment.
  • Easy and Convenient: It is an easy and convenient investment option. You can invest in online SIP by opening an account through the mutual fund houses. You can link your SIP account to your bank account and start investing instantly.

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

Benefits of RD:

  • Short-Term Investment: RD is the most suitable investment instrument for fulfilling your short-term goals. It is also an ideal option for investors who want to set aside a part of their income for expenses in the near future like a home down payment, funding vacation or a coarse etc.
  • Online RDs: Now you can also open an RD account online through your net banking account. You can link your RD account with your salary account to make monthly payments easier.
  • Flexibility: Many RDs come with the option of flexible payments. Enrolling in these RDs will benefit you as you will not have to bear a penalty if you miss payments any month. These RDs also allow you to withdraw the amount anytime.
  • Guaranteed Returns: You can rest assured that you will get guaranteed returns at maturity. The returns are calculated based on a predetermined interest rate that ranges from 6% to 7% on RD deposits.

Investors can invest in RDs and SIPs to help your money grow. However, the investment options can be chosen based on your financial goals and your risk appetite.

See Also: Your 2 Minute Guide To SIP

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