Bank Fixed Deposits and Mutual Funds are the two most popular investment avenues for retail investors in India. RD or Recurring deposits and mutual fund SIPsare essentially deposit plans from your regular savings which go to bank RD and mutual fund schemes respectively. Both RD and SIPs are used by large numbers of investors. In this article we will compare these two plans – SIP vs RD- so that you can make informed investment decisions.

What is SIP?

Systematic Investment Plan or SIPis a mutual fund investment plan where an investor can invest a fixed amount in a scheme of his / her choice at regular intervals (weekly, fortnightly, monthly etc). To start a SIP, you have to submit a bank ECS mandate along with the SIP application form. Different fund houses offer a variety of choices of SIP debit dates. Through the ECS mandate, the SIP amount (as specified by you) automatically gets debited from your bank on a particular day of the month (or any other frequency) specified by you and gets invested in the scheme of your choice till the time you stop the SIP. Minimum SIP amounts are usually Rs 500 or Rs 1,000.

What is RD?

If you compare SIP vs RD, RD is a term deposit plan offered by banks in which you can make regular deposits and get interest on it. The tenure of an RD can range from 6 months to 10 years. To open an RD account, you need to provide standing instructions to your bank to debit fixed amounts from your savings bank account and credit it to the RD account. The interest rates of RD and FD are usually the same if the tenure is the same. Interest earned by RD keeps accruing and is paid in lump sum along with the principal amount on maturity. Depending on the interest, the bank may deduct TDS on interest from your RD account. RD interest is taxed as per the income tax rate of the investor. 

Similarities between recurring deposit vs SIP 

• You do not have to commit a large sum of money in SIP and RD. You can start investing from your regular savings.
• Both are long term investments if you compare SIP vs RD investments. 
• Both SIP and RD helps inculcate a savings habit in investors who are early in their professional careers and do not have large investible surpluses.
• Both offer a high degree of flexibility. You can stop your SIP and RD at any time and withdraw your money. However, some banks may charge penalties for premature withdrawals from your RD account.
• Both offer a high degree of convenience. With a standing instruction, a fixed amount gets debited from your savings bank and gets invested either in mutual fund SIP or RD.