RD vs SIP: Which One To Choose?

25.Apr.2025
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Both an SIP (Systematic Investment Plan) and RD (Recurring Deposit) are popular investment options in India, each offering unique ways to grow your money. While they serve the common purpose of building wealth through regular investments, they differ significantly in structure, flexibility, and returns.

These investment plans are designed to cater to different types of investors in India. In simple words, RD is rigid with fixed and known future prospects of investments, whereas SIP is flexible and has unknown future prospects.

In this blog, we are going to delve deeper into the concept of RD vs SIP, learn about their benefits and differences and find out which would be a better option for you.

What is an SIP?

An SIP or Systematic Investment Plan is a method of investing in mutual funds where you contribute a fixed amount at regular intervals. You can choose to pay your SIP daily, monthly, quarterly or annually. It allows individuals to invest small amounts systematically over time, making it an accessible and budget-friendly investment option, especially popular in India.

Returns for investments in SIPs depend on the market and the performance of the base mutual fund scheme. One of the biggest advantages of SIPs is their flexibility, you can start, pause, or modify your investment plan as needed without major restrictions.

SIPs are best suited for individuals with a long-term investment horizon and a willingness to accept moderate to high risk.

What is an RD?

RD or recurring deposits are an investment plan where a person invests fixed amounts of funds at regular intervals for a fixed interest rate. This investment plan, unlike SIP, is risk-free as they have a fixed interest rate. However, by choosing this option, you may also miss out on additional profitability that comes from strong market performance.

These investments offer less flexibility as they come with a fixed investment plan and a predetermined payment date. You will need to set up a standing instruction with your bank to automatically deduct the amount from your savings account on the due date.

Difference Between RD and SIP

Here is a table that points out the key differences between SIP and recurring deposits.

Features	Systematic Investment Plan (SIP)	Recurring Deposits (RD)
Investment Plan	SIP allows people to choose their investment plan, and they can pay for their investments daily, monthly, quarterly or annually.	RD is less flexible, and a person investing in RD has to pay their investment amount monthly.
Investment Schemes	SIP allows people to invest in equity or debt funds, depending on their risk appetite and objectives.	People can opt for regular RDs or flexible RDs based on their choices and objectives.
Risk Bearing Capacity	It offers the probability of more benefits however, it comes with increased risk as it is subject to market risks.	It offers fixed profits at fixed interest rates, making it a comparatively less risky investment plan, however, you lose the opportunity to make higher profits.
Taxation	This investment is subject to capital gains tax. You can get tax deductions up to ₹1.5 lakhs for ELSS investments.	It is taxed according to the tax slab rates.
Investment Objective	People who can risk some of their funds in the hope of getting higher returns can opt for SIPs.	People who want assured returns over a fixed time can invest in RD.
Tenure	There is no fixed tenure for an SIP.	RD has a maturity period that generally lies between six months and ten years.

Advantages of SIP

Now that we understand the concept of RD vs SIP, let’s explore their advantages to help decide which investment method is more suitable. Here is a list of the advantages of SIP:

Systematic Investment

SIP helps organise your investment journey and protects you from making impulsive decisions. Often, people react to sudden market swings by investing large sums without fully understanding the risks, sometimes resulting in losses they cannot afford.

Exponential Gains

SIP has compounding potential, which can provide you with an exponential gain over time. This will provide you with a significant corpus at times of need.

Affordability

You can start investing in SIPs at a very low amount. This widens the market reach and makes it affordable for most people.

Tax Benefits

This investment provides a deduction of up to ₹1.5 lakhs on ELSS Mutual Funds.

Professional Investment

Professionals at Asset Management Companies strategically manage funds based on market behavior. This results in an optimum return on investments.

Advantages of RD

Here is a list of the advantages of Recurring Deposits as an investment platform.

Fixed ROI (Return On Investment)

RDs offer a guaranteed rate of return set at the time of investment. This makes them ideal for those looking for consistent and predictable earnings without market fluctuations.

Tax Benefits

This investment does not have a direct tax deduction or exemption. However, you can invest in tax-saving RDs to save some of your taxes under specific conditions.

Tenure Flexibility

RDs do not have the same flexibility as SIPs. However, you can choose a plan with a tenure ranging from six months to ten years.

Easy Availability

Most banks and financial institutions provide RD schemes with minimal documentation requirements, making them easily accessible for most individuals.

Easy to Understand

RDs are considered a simpler investment option that requires minimal planning before investing.

Suitability

RDs are a good investment plan for conservative investors who prefer fixed interests and have a low risk tolerance.

Which is a Better Option for You: RD or SIP?

Both RDs and SIPs are bank investment plans but have different features catering to different types of investors in the investment market. Let us know which investment plan suits you.

If you prefer to closely monitor your finances and value the security of knowing your future returns, Recurring Deposits (RDs) can be a suitable investment option. They offer fixed returns and a predictable investment schedule.

SIPs are a good investment scheme for you if you can handle some financial risk for a higher return on your investment. You will also enjoy flexibility in payments and the ability to pause or unpause your investments according to your needs.

Final Thoughts

The RD vs SIP debate is an important consideration for investors across India. Both investment options cater to different financial needs and risk profiles. RDs offer fixed interest rates and follow a rigid investment pattern, while SIPs provide flexibility and growth potential, with returns linked to market performance.

If you want to invest in mutual fund SIPs, Torus Digital provides a seamless and effective platform where you can invest in great SIPs of your choice. Download the app and start investing today!