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Systematic Investment Plan vs Recurring Deposit

Two of the most common and popular modes of investment are Recurring Deposit and Systematic Investment Plans. Which one would you pick? Read on to find out more. Recently, SIPs or Systematic Investment Plans have taken the financial market by storm. More and more young and senior investors are aiming for SIPs. As per the Associations of Mutual Funds in India, mutual fund SIPs accounts stood at 2.54 CRORE! And the total amount collected through SIP during December 2018 was ₹8,022 crore. In a systematic investment plan, you are required to invest a small amount monthly or in any other frequency of your choice in any mutual fund. This mitigates financial burden on investors who do not wish to invest a huge sum at once. Also, a SIP helps you take advantage of rupee cost averaging. A recurring deposit or RD, is a scheme where you are required to invest a fixed amount on a monthly basis for a predefined period of time. Post the tenure, you can withdraw your principal amount along with the simple interest earned. The interest earned from an RD is taxable if it exceeds ₹10,000/-

Difference between Systematic Investment Plan and Recurring Deposit

CriteriaCriteriaSystematic Investment Plan
TypeYou invest in a deposit plan with a fixed amount on a monthly basis for a predefined tenure. You invest in a mutual fund on a monthly | quarterly | annual | semi-annual basis.
RiskNone, RDs are one of the safest form of investment.The risk involved in a SIP depends upon the type of mutual fund where the SIP amount is invested. The risk can range from low, moderate or relatively high.
ReturnsThe returns on a RD are fixed and so is the rate of interest which is revised every financial year by the bank.The returns on a SIP are based on the markets. They are also influenced with the type of mutual fund.
FlexibilityRecurring deposits come with the option of premature liquidity. But, these are subjected to penalties or exit charges.SIP offers a higher degree of liquidity in comparison to RDs. You can easily withdraw your SIP and close the account without any charges or penalties.
TaxationThe interest earned is considered as a part of taxable income. SIPs attract LTCG as well as STCG, only ELSS mutual funds allows a tax deduction on investments of up to ₹1.5 lakhs under Sec 80C of the Income Tax Act, 1961.
Payment FrequencyYou are required to make monthly installments. You can make investments via monthly | quarterly | semi-annual or annually.
Investment GoalRDs are suitable only for short term goals with a tenure of 12-24-36 months. SIPs are suitable for any type of financial goal. You can select a particular fund on the basis of type, risk, returns etc.

Returns in Systematic Investment Plan vs Recurring Deposits

As mentioned above, the returns as well as the rate of return under a RD is fixed. This rate of return is decided by the particular Bank where you wish to start a RD and is revised every financial year. While the returns of a SIP are market linked. SIPs depend upon the performance of the market.

Benefits of Investing in SIPs

Discipline

Investing a small amount on a monthly basis not only helps you purchase a mutual fund but it also inculcates a fine habit of regular savings.

Rupee cost averaging

SIPs help you take advantage of rupee cost averaging. When the market volatility is high, you purchase less units while in times of low volatility, you purchase more units. This averages out your overall investment.

Easy and convenient

Investing via SIPs is simple and hassle-free. You can subscribe from multiple mutual fund houses with an online SIP. You simply need to register by entering a user ID and Password, link your bank account and start a SIP immediately.

Benefits of Investing in Recurring Deposits

Short term investment

A RD is highly suitable for a short term investment with a tenure of 6-12-18 months or more. It is ideal for newly employed salaried individuals who are planning to accumulate savings for their near future.

Online RDs

A recurring deposit is one of the easiest scheme to avail from a bank. In case you are an existing customer, you can easily open a RD linked to your savings/salary account by placing an online request through your net banking facility.

Flexible

Many RDs come with the facility of flexible payment where you will not face a penalty in case you miss out on any of your monthly payments. Also, you can withdraw the amount anytime you want.

Guaranteed returns

A RD comes with guaranteed returns. These returns are based on a specific predetermined rate of interest. This rate of interest ranges between 6%-7%.

FAQs on Systematic Investment Plan vs Recurring Deposit

Is recurring deposit a good investment option?

Yes, it is one of the safest type of investment schemes which comes with guaranteed returns at a fixed rate.

Is SIP good?

Yes, a SIP is a suitable mode of investment in case you do not have a lump sum amount in your hand. Also, it helps you take advantage of rupee cost averaging.

Is SIP tax free?

A SIP is a mode of investment, it cannot attract tax upon itself. But, the mutual fund for which you start a SIP comes under the purview of income tax.

What is a recurring deposit investment?

A recurring investment is a Recurring Deposit Scheme where you are required to invest a fixed amount on a monthly basis for a predefined tenure.

What is expected interest rate in SIP?

The rate of interest in a SIP is depended upon the type of mutual fund investment. It can range from 10%-15% on an annual basis.

What is iWish deposit in ICICI Bank?

It is a type of a flexible Recurring Deposit account offered exclusively by ICICI Bank where you can avail an interest rate equivalent to normal fixed deposits.

What is SIP account in banking?

When you apply for a SIP facility from a bank, the bank will open a mutual fund account which will be linked to your savings/salary account. The SIP will help you invest in mutual funds.

Which bank gives more interest on RD?

The interest rates on RD depends on the term for which the investment will be made. Hence after determining the investment term, one must check the available interest rates from various banks and invest accordingly.

Which bank SIP is best?

The SIP service provided by all the banks is the same. One must chose a mutual fund scheme depending upon his/her risk appetite.

Which is better PPF or SIP?

In terms of returns, a SIP scores higher than a PPF. Overall, both financial instruments are ideal for investment.

What is better, RD or SIP?

A SIP is a better form of investment as it offers higher returns and caters to your short term as well as your long term goals.

Which is the best RD scheme in India?

The RD schemes offered by all banks are good. One must check with the bank to know about the rd Scheme before investing.

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