One can invest through SIP in both Mutual Funds and RDs.
The money invested in RD is completely safe and you get guaranteed returns.
Investing in Mutual Funds is more risky. There is no guarantee of returns here.
New Delhi. Through Systematic Investment Plans (SIP), an investor can invest in Mutual Funds and Recurring Deposits (RD). In August 2022, investors have made Rs 12,693 crore through SIP in mutual funds. This shows that the confidence of investors in MF SIPs is increasing continuously. Many investors also invest money in RD. It is also a great investment tool to achieve short term financial goals.
Usually investors get confused in choosing either of these two to invest money. One can invest through SIP in both Mutual Funds and RD, but still there is some difference between these two investment schemes. Where the money invested in RD is completely safe and gives guaranteed returns, then investing in mutual funds is more risky. There is no guarantee of returns here.
Money Safe, Guaranteed Returns in RD
Moneycontrol According to a report by the RBI, Recurring Deposit is a debt instrument and it guarantees the investors the safety of their capital. Banks offer the facility of getting RD for a period of one year to 10 years. This is a good way to build funds in the short term. You can deposit a small amount every month in RD. There is no tax exemption on investment in RD nor is the interest earned from it tax free. Since RDs have a lock-in period, it is difficult to withdraw money before the maturity period and banks charge a fee for withdrawing money before the maturity period.
Generally, the returns of RD are less than the inflation rate. Anmol Joshi, founder, Plan Rupee Investment Services, says that deposits up to Rs 5 lakh in RD are guaranteed by the Deposit Insurance and Guarantee Corporation. That is, if the bank sinks due to any reason, then the investor will get back the amount up to Rs 5 lakh.
Higher returns, higher risk in mutual funds
Mutual fund SIPs are quite flexible. You can choose daily, weekly, fortnightly, monthly, quarterly or yearly option for investment. You can invest in equity through SIP. Amol Joshi says that SIP is the best way to invest in equity market. Bank Bazaar CEO Adil Shetty says that if you do SIP for at least 5 years, then you will get the best returns. Investing in MF SIPs is risky and depends on the market. There is no guarantee of returns. It is easy to close the SIP and withdraw the capital.
Whom to choose?
Raj Khosla of My Money Mantra says that any investment plan should be chosen keeping in mind your risk appetite and investment time. Joshi says that those who do not have much knowledge about the financial market or want to achieve any short term goal, they should invest in RD. Similarly, choose mutual fund SIPs to invest for the long term. Mutual fund SIPs are also suitable for investors who are well versed in the market and can take risks.
Adil Shetty says that there is no guarantee of capital in MF SIP and the return is also not fixed. Therefore, the investor must assess his risk appetite before investing in it. Raj Khosla of My Money Mantra says that for investors who want to invest for at least 5 years or more, Mutual Fund SIP is better than RD. This is the reason why long term investors like it more.
FIRST PUBLISHED : September 29, 2022, 12:41 IST