Setting aside some fixed capital every month, specifically for investment or savings is the best way for wealth creating in the long run without much effort. So, if you are planning to invest and are on the lookout for different investment options, then Systematic Investment Plan(SIP) in mutual funds and Recurring Deposit(RD)in banks are some of the most common investment avenues you can consider. But which one is better for you? Let’s look at some differences between these popular investment instruments.

What is an SIP?

An SIP allows you to make a mutual fund investment in a systematic manner in your preferred schemes. Under an SIP plan, an investor invests a fixed amount at regular intervals for a pre-determined period. The investment sum can be as low as Rs500 per month. You can also use an SIP calculator to gauge the returns earned over the period. 

What is a recurring deposit?

A recurring deposit is a type of term deposit provided by banks that aid people with regular or fixed incomes to deposit a fixed amount each month into their recurring deposit account and earn returns at the rate applicable to fixed deposits at that time.

Difference between SIP and recurring deposit

Systematic Investment Plan Recurring Deposit
Type of investment SIP is a way toinvest in mutual funds periodically. The periodicity can be daily, weekly, monthly, annually, etc.  Recurring deposit is a type of deposit plan where you invest a fixed amount every month. 
Scheme of investment SIP offers the option to choose among different types of mutual funds available to investors. Under an RD plan, your investments fetch a fixed rate of returns. You can opt for a flexible RD plan if you seek additional flexibility. 
Risk SIPs fetch variable returns as they are dependent on the stock market. There can be a risk of capital and capital. Recurring deposits are considered to be one of the safest investment avenues and hence are exposed to limited risks. 
Returns Returns from SIP investments are dependent on the equity and debt market and the type of mutual fund. Returns on RD are fixed and are known to the investors at the time of starting an RD.Indian banks provide returns on RD around 6-7% p.a.
Liquidity SIPs are a preferred mode of an investment than RDs when liquidity is considered. They can be closed anytime without attracting any penalty charges.  RDs are liquid but premature withdrawal attracts penalties or exit charges.
Goal of investment SIPs can aid to serve all types of investment goals- be it long-term or short-term depending on funds chose, investment tenure, and other factors. RDs are usually suitable for risk-averse investors who have a short-term investment goal in mind. 
Taxation SIP investments are eligible for tax deduction only if invested in Equity-Linked Savings Scheme (ELSS funds). The interests earned on RD are added to the taxable income. 


Clare Louise