Saving money regularly is a habit worth inculcating. Be it for a wedding, or education, or emergencies, or travel, everyone looks for secure ways to grow their savings. Two popular options for disciplined saving are Recurring Deposits (RDs) and Systematic Investment Plans (SIPs). While SIPs have gained attention in recent years due to their higher return potential, many people still choose RDs. But why?
Let’s break it down.
SIP vs RD: A Quick Introduction
SIP is a method of investing a fixed amount regularly (usually monthly) in mutual funds. It is linked to the market. Thus, it means returns can vary depending on market performance.
RD, on the other hand, is a savings scheme offered by banks and post offices, where you deposit a fixed amount every month for a set period. It earns a fixed rate of interest.
Both options promote disciplined saving, but they work very differently. So why does RD still appeal to many?
Why Do People Still Prefer Recurring Deposits?
We have all seen the perks of SIPs, especially the returns and the option to start with a really low amount. Let’s understand what makes RDs a preferable choice:
1. Guaranteed Returns, No Surprises
With RDs, what you see is what you get. If the bank promises 7% interest, you’ll get exactly that at the end of the tenure. This predictability appeals to many conservative investors who want to avoid market-related stress.
In contrast: SIPs do not offer guaranteed returns. Market ups and downs can affect your final corpus.
2. Low Risk = Peace of Mind
Relying on market-linked products like mutual funds can be stressful for risk-averse individuals. With RDs, there’s no worry about market volatility, making it a safe choice for those who want to protect their capital.
Especially important for: retirees, homemakers, or anyone saving for short-term goals.
3. Simple and Hassle-Free
Opening and managing an RD is as easy as visiting your bank or using net banking. There’s no need to understand fund performance, NAVs, or asset allocation.
SIPs, while systematic, require a basic understanding of mutual funds, types (equity, debt, hybrid), and long-term planning.
4. Financial Discipline Without Market Fear
Both RDs and SIPs promote regular saving habits. But RDs do this without exposing investors to any risk. For many, it’s easier to stick to a plan when the outcome is guaranteed.
5. Tax Is Tax – But Simpler in RDs
While both options are taxable, the tax on RD interest is straightforward and deducted at source (TDS). In contrast, SIPs involve Short-Term Capital Gains (STCG), Long-Term Capital Gains (LTCG), indexation benefits (for debt funds), and more—making tax filing a little more complicated.
RD vs SIP: A Side-by-Side Look
| Feature | Recurring Deposit (RD) | Systematic Investment Plan (SIP) |
| RD interest rates | Fixed (5–9%) | Variable (10–20% typically) |
| Risk | None | Market-linked; varies based on fund and market |
| Tenure | Fixed (6 months to 10 years) | Flexible – investor can stop anytime |
| Liquidity | Premature withdrawal with penalty | Can exit anytime (exit load may apply) |
| Tax | Interest is taxable as per slab | STCG/LTCG applicable based on duration & fund |
| Best For | Conservative investors seeking security | Investors seeking long-term growth |
| Flexibility | Less flexible – fixed amount, fixed tenure | Highly flexible – can increase, pause, or stop |
| Investment Start | As low as ₹100 per month | As low as ₹500 per month |
Which One Should You Choose?
It depends on your goals, risk appetite, and investment knowledge.
- Choose RD if:
- You want safety and predictability.
- You are saving for a short-term goal like a vacation or gadget.
- You’re uncomfortable with market risk.
- Choose SIP if:
- You have long-term goals like retirement or your child’s education.
- You want higher returns and can handle some ups and downs.
- You’re comfortable with basic mutual fund knowledge.
Pro tip: Use an RD or SIP calculator online to compare outcomes and plan better.
Summing Up
SIPs may offer higher returns, but RDs continue to win hearts with their simplicity, safety, and certainty. For many, peace of mind is more valuable than potential gains.
And sometimes, that’s all the reason one needs.