SIP vs RD: Which can offer higher returns on Rs 5,900 monthly investment over 5 years?
Compare SIP and RD to discover which investment offers higher returns on a Rs 5,900 monthly investment over 5 years. Learn their features, benefits, risks, and estimated returns.
A Systematic Investment Plan (SIP) allows you to invest a fixed amount periodically in mutual funds, leveraging market growth for potentially higher returns. Conversely, a Recurring Deposit (RD) is a savings scheme where you deposit a fixed amount monthly, earning guaranteed interest at a fixed rate. Both are popular options for disciplined investing but differ significantly in risk and returns. This article compares SIP and RD returns for a Rs 5,900 monthly investment over 5 years.
Understanding SIP (Systematic Investment Plan)
SIP allows you to invest a fixed amount regularly in mutual funds. Instead of making a lump-sum investment, SIP lets you invest smaller amounts consistently, potentially resulting in higher returns over time.
How SIP Works
- SIP investments are automatically debited from your bank account at predetermined intervals.
- Units are allocated based on the mutual fund’s NAV (Net Asset Value).
- Over time, reinvested amounts grow due to compounding, boosting returns.
SIP Returns on Rs 5,900 Monthly Investment (5 Years)
- Monthly Investment: Rs 5,900
- Total Invested Amount: Rs 3,54,000
- Estimated Returns: Rs 1,32,670
- Total Value: Rs 4,86,670
Understanding Recurring Deposits (RD)
RD is a savings scheme where a fixed amount is deposited monthly for a fixed tenure, earning interest. It is a low-risk option ideal for risk-averse investors.
RD Features
- Interest Rate: 6.7% per annum (quarterly compounded)
- Minimum Deposit: Rs 100 per month, with no maximum limit.
- Multiple accounts can be opened, even for minors.
Key Benefits of RD
- Allows advance deposits for up to 5 years with applicable rebates.
- Offers a loan facility after 12 installments.
- Option to extend the maturity period if defaults occur.
RD Returns on Rs 5,900 Monthly Investment (5 Years)
- Monthly Investment: Rs 5,900
- Total Invested Amount: Rs 3,54,000
- Estimated Returns: Rs 67,058
- Total Value: Rs 4,21,058
Comparing SIP and RD Returns
- SIP offers significantly higher estimated returns (Rs 1,32,670) compared to RD (Rs 67,058).
- SIP benefits from market-linked growth, while RD provides stable, fixed returns.
Risk Assessment
- SIP: Moderate to high risk as returns depend on market performance. Suitable for those with a higher risk appetite.
- RD: Low risk with assured returns. Ideal for conservative investors.
SIP vs RD
- Opt for SIP if you aim for higher returns and can tolerate market fluctuations.
- Choose RD for stable, predictable growth with minimal risk.
- Your financial goals, risk appetite,and investment horizon should guide your decision.