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Recurring deposits or SIPs: Which offers better returns?

  • Highlights

  • SIP offers more interest but involve some risk

  • Recurring deposits are a risk-free wealth building option

  • SIPs offer immense flexibility and are highly liquid

  • Both SIPs and RDs offer tax benefits with a lock-in

Determining your priorities gives you a chance to gauge whether your financial standing allows you to take risks. If you want high returns on your investments going for market-linked instruments like SIPs is a good idea. However, if you want to save risk-free on a monthly basis then choosing recurring deposits are ideal. Take an in-depth look at how you choose between SIPs and RDs based on these considerations.

Interest on your investment

In the SIP vs. RD tussle, SIP is a sure-shot winner in terms of the interest you can receive. Some of the best SIP plansoffer an interest rate of 12%–15% on average that can go up 20%–22%. When you choose top SIP from NBFCs like Bajaj Finserv, you are sure to gain higher returns under the supervision of specialised fund experts. Compared to this, when you choose a recurring deposit either with a bank or a post office, you can expect an average interest of 6%–7.5% on your savings.

Liquidity that you can enjoy

You can start a recurring deposit at a fixed tenor of 1 year at the minimum. During this time, even if you stop paying the monthly recurring amount, you cannot stop the deposit midway or retrieve the invested sum. You will have to wait till the maturity date to liquid the deposit. However, SIPs are highly liquid and you can pull out your invested money anytime by paying a fund management charge and an exit load. You can invest in SIPs for as few as 6 months; however, for best returns, invest in SIPs for at least 3 to 5 years.

Tax savings to benefit from

You are allowed to claim a maximum of Rs.1.5 lakh against your savings in recurring deposits and SIPs alike under Section 8OC of the IT Act. However, it is important to remember that to claim income tax deductions you will have to lock-in your savings in these instruments for a minimum of 3years. Also, the interest earned in a year for recurring deposits isexempt from TDS.

Minimum and maximum deposit for investment

Both recurring deposits and SIPs allow you to invest a regular monthly amount in multiples of Rs.500. There is no cap on the maximum amount you can invest in each case. However, the return on a small investment over a short-term isusually higher in case of SIPs as compared to recurring deposits. Additionally, recurring deposit is a monthly investment scheme, while you can invest in SIPs on a daily, weekly, monthly, quarterly, yearly basis.

While choosing a lucrative investment instrument for yourself, it is important to base your choice on the returns you can expect. But, solely investing keeping returns in mind will not prove beneficial in the long run. So, understand the investments on the above factors and then choose what’s best for you.

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All you need to know about selecting the best SIP


All you need to know about selecting the best SIP