SIP Or Recurring Deposit – Which is Better?

SIP and a RD account are two different ways of investing money. Both differ in their ways but one commonality remains intact is the return of the amount invested. SIP and RD are two great ways that show, how can an investor and even an ordinary salaried person, channelize their income in a secured and hassle-free way.

Many get confused between SIP and RD as both have some commonalities. Here we will discuss both in detail so that one can get a clear idea and can decide where to invest to get better returns in future.

What do we understand by a Systematic Investment Plan (SIP)?

SIP is nothing but a simple technique to invest money in a mutual fund every month. It can be done on a weekly, monthly or quarterly basis as well so that one does not have to invest a big amount at one go. When one activates a Systematic Investment Plan, the amount automatically gets deducted from his/her bank account and that amount gets invested in mutual funds.

Some benefits of investing in SIP

We have framed an idea about what SIP is and now let’s see what are the benefits:

  1. Security and Flexibility. Once SIP is activated, one can relax and not think about how the money will be invested. It gets deducted from the account and gets invested in Mutual Funds.
  2. SIP always allows one to go for more units when the market is not going well and similarly fewer units when the market is doing well.
  3. Helps your future to grow better by helping you invest the little amount regularly. Even if you fail, it will automatically go to the SIP.
  4. You can easily stop SIP, at your discretion.
  5. Paves a way for you to do something good with your hard-earned savings.
  6. The risks are very low as you invest little amounts but regularly.

Some negative points of SIP

We have seen why one should invest in SIP, now let us see, why one should avoid investing in SIP:

  • The return of investment is pretty low.
  • It is not a good way for people with a variable income, which is not constant.
  • Every time, only a fixed amount gets deducted, and this becomes stagnated at times. If you plan to invest more or even less, you can’t go for it.
  • Difficult to stop SIP mid-way. In case of an emergency, where you have to invest a huge amount from your account, then also your SIP will be deducted. To close this, 2 weeks before it has to be notified to make sure, it doesn’t get deducted.

What do we understand by a Recurring Deposit?

If spoken about low-risk and high-security investment options, Recurring Deposit comes into the play. Recurring deposit is one of the best ways of investment, where one can invest their money without a doubt. It is flexible, secured and comes with a handful of benefits for the future.

Money can be invested in a recurring account, starting from a tenure of 6 months till 10 years, and that is absolutely in the hands of the one who is investing. Big reputed banks, as well as non-banking financial companies, also offer recurring deposits for long or for a short period.

The key benefits of a Recurring Deposit are:

  • The safe and secured investment plan.
  • The minimum amount to open an account is very low. So, if one doesn’t have a huge amount to invest at first in a recurring deposit account, he can start with a small amount every month.
  • The tenure is very flexible, it is from 6 months to 10 years. So, both short- and long-term plans are available.
  • The rate of interest generally varies from sectors to sectors, still, it remains around 5%-8%.

Some negative points of a Recurring Deposit

  • Withdrawal of money before the tenure is not allowed.
  • The rate of interest is lower than other plans.
  • The investment amount for every month cannot be changed. Hence, not flexible.

Which one to invest in?

Since we have discussed much on both SIP and RD accounts, now an investor must be confused and might not be able to decide where to invest the money to get good benefits in the future. So, let us discuss the main points, where SIP and RD differ.

  • The return on investment for SIP is not fixed and depends on the market, but in RD it is fixed.
  • There is no such tenure for SIP, but the minimum period should be 6 months. But in RD there is a maturity date which the investors have to choose.
  • If compared SIP is a bit riskier than RD because it depends on the market whereas the latter doesn’t.
  • In the case of SIP, there are various options to choose from, but there is nothing such in RD.

Everybody wants a secured place to keep their savings untouched and at the same time to get good returns out of it. Both SIP and RD are good for people who are unable to spend a lot at one go but can invest little amounts on every interval. Both the ways of investments cater to the needs of its customers in a way that is safe and has low risks. But if compared, even if SIP comes with more risk factors, still it is better than RD as it allows its customers to close the account at any time they want. But a Recurring Deposit account can only be closed before maturity, with paying penalties.

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