Recurring deposit versus Systematic Investment Plan: Which is the best investment plan

It comes as no surprise that plenty of working individuals will recommend investing your earnings into savings as soon as you get your first paycheck. But with so many investment options available in the market, how do you know which is the right one to invest in?

Amongst the several popular options available in the market, the recurring deposit and the systematic invest plan have always been a popular option. But between these two options, how do you know which one is a viable option for your investment?
Given below are the differences between these two investment options and how you can make the most of it:

Investment: SIP’s make for an ideal investment in choice. For one, you can invest it on a weekly, monthly or quarterly session. This works best for those who don’t have a steady income or have multiple forms of income. The choice will depend on your preference. However, the RD account is a termed deposit. You need to invest your funds on a monthly basis on a fixed date. This is ideal for those who have a steady income.

Investment schemes: As far as investment schemes are concerned, SIP’s have a lot more to offer as compared to the recurring deposit. With SIP’s an investor has a choice to invest in an equity or debt scheme. This will depend solely on the risk appetite of the investor. For those who are looking for reoccurring investments, this is an ideal choice. With the RD termed deposit, there is only one scheme available. An investor will only be able to invest in one single form of deposit, with a fixed rate of return along with a fixed term. This is an ideal choice for those who want to invest for a particular financial goal in mind.

Returns: In both cases, the returns are often determined by the performance in the market. In the case of SIP’s the equity or debt market will offer a return of anywhere between 12 to 15% of return. These returns can occur at any time. In the case of the recurring deposit account, the returns are not only fixed, but the investor knows well about the time of the return. Usually, the returns range between 7.0 to 8.5%.

Risk: In both investment options, there are risks involved. In the case of SIP’s, the investment depends on the market performance, which offers a high risk. However, in the case of the recurring deposit account, the risks are comparatively low, as the rates are often fixed at the time of investment.
Liquidity: SIP’s offer a more liquid investment as opposed to recurring deposits. Investors can easily close a SIP and withdraw funds anytime.

Furthermore, there is no penalty for withdrawing funds from a SIP account. Although RD account is liquid, any withdrawal before the tenure is met will attract withdrawal charges, and the full benefits of the account will not be given.

While there is a considerable difference between both investment options, each option is best suited for different financial profiles. To make the most of these investment options, you need to know the strengths and weaknesses of your profile and match it to the required investment options before investing.


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