SIP vs RD: Which is the better investment option?

Earning money is very exciting, and putting it in the right places for investment is a smart move. Investment is an essential aspect of wealth creation and keeping your money in a safe place to see it grow in the long term. There are tons of investment tools available these days that may help you start investing and get the most out of your hard-earned cash. The most preferred options in this area are Systematic Investment Plan (SIP) and Recurring Deposit (RD). Which is the best, and how will you pick one based on your financial objectives? Read this blog to learn about SIP vs RD, and how to choose the best between these two.

Understanding SIP and its benefits

SIP is a disciplined approach to investing money in mutual funds. It means investing your money in a fixed amount pattern in regular intervals. The investment is deducted automatically from your bank account to avoid hassles and missed payments.

The major benefits of choosing SIP are:

Good for long-term goals

SIPs are great for your long term financial goal because putting your money in the market at regular intervals is a smart move and helps you earn high returns when the market is high. It helps save for your retirement years, wealth generation, and gain funds for additional expenses.

Power of compounding

The concept of compounding means the money you invested in SIPs can be reinvested in other schemes to give you larger returns. This is beneficial especially when you are trying to save for a bigger goal in the future and secure your finances for your golden years.

Experienced fund managers

Investing in SIPs lets you work with fund managers, who are expert professionals and do proper research before investing your money in the market plans. It ensures your money does not get trapped and gives you the expected returns. They analyse all the associated risks and then invest across diversified portfolios.

Flexible investment amount

SIPs allow you to start your investment in flexible amounts starting at just Rs. 500 every month. This feature makes SIPs a reliable and affordable financial tool to invest your money and can be within the reach of everyone. Use the SIP Calculator to determine your investment amount accurately.

Cost averaging

If the NAV (Net Asset Value) or the unit price decreases, you can buy more units for the same amount of SIP you invested. It helps overcome market fluctuations and lets you earn high returns and generate wealth.

Understanding RD and its benefits

RD or Recurring Deposit is a preferred investment choice, offered by banks in India. In this, you can deposit a fixed amount every month over a certain period in your RD account, opened at your desired bank. These are conventional means of investing money, used by many women and senior citizens to earn interest on money.

Here are the key benefits of investing in an RD:

Fixed investment

With an RD as your investment tool, you can easily start investing as a beginner in this segment. In this, you need to choose an amount of your choice and keep on depositing in the bank every month. It develops a healthy habit of investing and saving.

Free from market dynamics

RD is free from market fluctuations and does not depend on its dynamics. Whether the market goes down or goes up, it doesn’t matter. RD always gives you a safe option for a flexible investment option.

Earn interest

RD lets you earn interest quarterly which helps you get good interest on the RD amount. When your RD tenure ends, the total RD amount along with the interest is deposited in your bank account.

SIP vs RD, how to choose?

Here’s an overview of SIP vs RD:

Conclusion

In deciding between SIPs vs RDs, understanding their key differences is crucial. SIPs offer the potential for higher returns through market-linked investments in mutual funds, suited for those willing to bear market risks. On the other hand, RDs provide stable returns with minimal risk, making them ideal for conservative investors looking for assured returns over a fixed period. Ultimately, diversifying your portfolio based on these factors can optimise your investment strategy.