SIP or RD: Which Suits you Better?

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70 NEWS JAPAN - A Recurring Deposit, popularly known as RD, is a unique term deposit scheme offered by the banks. RD is a tool of investment that allows you to earn decent returns on your investments if you have an ability to make regular deposits. The RDs come with flexibility and the ease of use to you with a component of interest and regular deposits. You can pick a certain amount every month, making sure that you have enough income in case of an emergency, with the RDs giving you a decent interest in your investment. You can consider it to be an ideal saving cum investment option, given that the Fixed Deposits are rigid and are not considered ideal options for short-term.

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In Recurring Deposits, you have to first select the amount of monthly deposit and the tenure. After the inception of the RD scheme, you must deposit the sum decided every month over the period of time. Usually, the duration differs from 6 month of a minimum tenure and henceforth in addition of the three months to up to a maximum tenure of 10 years. RD is gentle on your pocket provided that you decide the sum to be invested. Moreover, risk is significantly low.

The rates of interest for Recurring Deposits are dependent on the deposit amount and its tenure. The interest rates for RD usually differ from 7 percent to 8 percent; however, a higher interest rate is offered to the senior citizens. You can start a Recurring Deposit at any bank, be it public sector bank or a private bank, and post office. Unlike the SIP, in Recurring Deposits you will know the amount to be received by you at the end of the tenure. For instance, if you wish to reserve a corpus of around Rs. 3 lakhs for your dream international trip, you can make use of RD Calculator to know the amount to be deposited every month and the number of years for which you have to save Rs. 3 lakhs.

One of the key drawbacks of RDs is the fact that this scheme is not tax efficient. Income generated from a RD scheme is summed up to the income that you declare for tax liability and a TDS is applied on the RD interest if the amount exceeds Rs. 10, 000.

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You can choose a SIP by making investment in mutual funds. In a Systematic Investment Plan, you have to deposit a small amount on a monthly or quarterly basis. The sum of investment can be just Rs. 500. If you pick a mutual fund plan and make investment in a SIP, depending on the scheme that you have chosen for they will allot your funds in equity or debts. Recently, it was noticed that equity mutual funds have produced better returns that have been in abundance of fixed deposit or recurring deposit plans. The returns produced by SIP mutual funds have been ranging between 12 percent and 22 percent in the last 5-10 years.