SIP vs. RD: Which one gives better returns? Use an SIP calculator to find out!

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Systematic Investment Plans (SIPs) and Recurring Deposits (RDs) are two popular investment options in India, especially among individuals looking to build wealth over time. Both SIPs and RDs offer a disciplined and systematic approach to investing, making it easier for investors to achieve their financial goals. However, they have distinct features and varying potential for returns. Let’s compare SIPs and RDs to determine which one may offer better returns using a SIP calculator.

SIP (Systematic Investment Plan):

SIP is an investment method where individuals invest a fixed amount of money regularly (monthly or quarterly) in mutual funds. It allows investors to take advantage of rupee-cost averaging, as they buy more units when prices are low and fewer units when prices are high. Over time, this strategy can lead to potential returns as the market fluctuates.

SIPs provide the flexibility to choose from various mutual fund schemes, including equity, debt, and hybrid funds. Equity SIPs are more suited for long-term goals, as they have the potential for higher returns, albeit with higher market-related risks. Debt SIPs, on the other hand, offer comparatively lower returns but come with lower risk. Check more on  SIP Calculator.

To find out potential returns from a SIP, let’s consider an example:

Suppose an investor starts a SIP with a monthly investment of Rs. 5,000 in an equity mutual fund that historically has provided an average annual return of 12% over the long term.

Using a SIP calculator, assuming a 12% annual return, and investing Rs. 5,000 per month for 10 years, the potential corpus at the end of the investment period would be approximately Rs. 12.85 lakhs. Check more on  SIP Calculator.

RD (Recurring Deposit):

RD is a type of fixed-term deposit offered by banks, where individuals invest a fixed sum of money at regular intervals (usually monthly) for a predetermined period. The interest rates for RDs are fixed and typically lower than the potential returns offered by equity mutual funds.

Let’s consider an example to understand potential returns from an RD:

Suppose an investor starts an RD with a monthly investment of Rs. 5,000 for a tenure of 10 years with an annual interest rate of 6.5%. Check more on  SIP Calculator.

Using an SIP calculator for RD, investing Rs. 5,000 per month for 10 years at a 6.5% annual interest rate, the maturity amount at the end of the tenure would be approximately Rs. 8.32 lakhs.

Comparison:

By comparing the potential returns from both investment options, we can observe that the SIP in an equity mutual fund has the potential to offer better returns compared to an RD. The SIP in equity has the advantage of higher returns driven by market performance, while the RD’s returns are limited by the fixed interest rate. However, it is important to note that equity investments, including SIPs, are subject to market risks and may experience fluctuations. The returns from equity investments are not guaranteed, and the actual performance may vary based on market conditions. Check more on  SIP Calculator.

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