SIP vs RD: Which can create larger corpus on Rs 21,000 monthly investment in 5 years?
Check how a Systematic Investment Plan (SIP) and Recurring Deposit (RD) can grow your wealth over five years.
ZeeBiz WebTeam | Dec 11, 2024, 06:03 PM IST
Planning to invest Rs 21,000 monthly? Know how a Systematic Investment Plan (SIP) and Recurring Deposit (RD) can grow your wealth over five years. While RDs offer guaranteed returns and promote disciplined savings, SIPs provide the potential for higher returns through mutual fund investments.
(Disclaimer: This is not investment advice. Do your own due diligence or consult an expert for financial planning)
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Understanding Recurring Deposits (RDs)
- RDs require fixed monthly deposits, unlike the lump sum investments in Fixed Deposits (FDs).
- They encourage regular savings and financial discipline among earners.
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How RDs Work
- Offered by most banks and financial institutions.
- Interest is compounded quarterly, making manual calculations complex.
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Benefits of RD Calculators
- Simplifies tracking and accurately calculates returns over time.
- Saves time and provides clarity for financial planning.
- Note: TDS deductions are not uniformly accounted for in calculators.
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RD: How much will a Rs 21,000 monthly investment grow in 5 years?
- Invested Amount: Rs 12,60,000
- Estimated Return: Rs 2,38,682
- Total Value: Rs 14,98,682
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What is a Systematic Investment Plan (SIP)?
- SIP is a mutual fund investment method where fixed amounts are invested at regular intervals.
- Facilitates gradual wealth creation through smaller, periodic contributions.
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How SIPs Work
- Amounts are automatically debited from your bank account at predetermined intervals.
- Units are allocated based on the NAV (Net Asset Value) of the mutual fund.
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Reinvestment Advantage in SIP
- Each investment adds more units, leading to compounding returns.
- Over time, the reinvested amount grows, significantly boosting returns.
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SIP: How much will a Rs 21,000 monthly investment grow in 5 years?
- Invested Amount: Rs 12,60,000
- Estimated Return: Rs 4,72,214
- Total Value: Rs 17,32,214
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Comparative Analysis: SIP vs RD
- SIP returns are significantly higher compared to RD due to market-linked returns and the power of compounding.
- RD offers guaranteed returns, making it less risky but with limited growth potential.
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Which Option Should You Choose?
- Opt for SIP if you are looking for higher returns and can handle moderate risk.
- Choose RD for stable and predictable returns, ideal for conservative investors.