Difference Between SIP and RD: Which One Is Better for You?

In today’s time, life is full of uncertainties and saving money is a must to build a financially secure future. But it is equally important to do it the right way to maximise the returns you get. Nowadays, there is a plethora of investment options available and each one of them has its own unique features. It is essential to choose something that can cater to your investment goals, risk appetite and other specific requirements.

Table of Content

What is SIP?
What is RD?
SIP vs. RD

Among the myriad of choices, SIPs and RDs are two options that are often considered a great choice for long-term wealth generation. Both these options are preferred by risk-averse investors who want to build a significant corpus through regular investments.

Are you also trying to choose between these two and not sure which one is better and why? Here is a detailed explanation of SIP and RD along with the advantages they both come with.

What is SIP?

A systematic investment plan, often referred to as SIP, is a financial tool designed to make mutual fund investment a lot easier. In this option, you can choose a mutual fund scheme of your choice and invest a fixed amount at predetermined intervals. Usually, these investments are made on a monthly basis but it which can be weekly, quarterly, semi-annually, or annually as well. SIPs are suitable for those investors who are planning to invest their money in mutual funds and want to do it in a streamlined manner rather than investing a lump sum amount.

Here are a few key benefits of choosing SIPs as an investment option:

Disciplined Investing: SIPs are an ideal option for those who want to make investments in a consistent manner as they instill a habit of disciplined saving.
Flexibility: This investment option comes with a good amount of flexibility in terms of the investment amount.
Rupee Cost Averaging: SIPs work on the rupee cost averaging strategy that helps minimise the overall impact of market volatility, reducing the risk factor.
Diversification: SIPs allow you to diversify your investment portfolio as your money is used for buying units of various mutual fund schemes across different industries.

What is RD?

A recurring deposit or RD is another investment method that allows you to save money in a streamlined manner. In this option, you can choose a specific tenure and a fixed amount that needs to be deposited every month till it reaches maturity. RDs are known to offer steady returns with minimum risk.

Here are a few key advantages of investing through a recurring deposit:

Fixed Returns: RDs are known to offer fixed returns as they have predetermined interest rates.
Low Risk: The returns you get in a recurring deposit don’t get affected by market fluctuations. So there is no risk involved in this investment option.
Capital Preservation: RDs come with the feature of capital preservation, which means you’ll always have the principal amount intact.

SIP vs. RD

Now that you have an idea about how a SIP works vis-a-vis how a RD works, it is important to understand factors that differentiate these two investment options. Here is a detailed comparison between SIP and RD, on the basis of several factors:

Factors	SIPs	RDs
Nature	SIP is primarily associated with mutual funds where you can invest a fixed amount at regular investments.	RDs are usually offered by banks and don’t involve stock, bonds, etc.
Frequency of Investment	Can be weekly/monthly/quarterly/semi-annually/annually	Monthly
Returns	Higher returns but depend on market condition	Fixed returns but lower comparatively
Tenure	Open-ended investment with flexible tenure	Predetermined tenure
Flexibility	Better flexibility in terms of investment amount as well	Cannot modify the investment amount later
Taxation	Subject to capital gain tax (STCGs and LTCGs)	Taxed as per individual income tax slab rate

SIPs and RDs both are equally popular with modern investors, but SIPs undoubtedly come with a few additional advantages. These two investment options work somewhat in a similar way but the amount of flexibility you get in SIPs makes them a better choice. However, it is essential to choose the right SIP(s) if you want to maximise your returns. At Muthoot Finance, we offer a wide range of options that can cater to the diverse requirements of investors. You can explore all our SIPs and choose the one that matches your financial goals and risk appetite. Or, you can also visit your nearest Muthoot Finance branch for more information.