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Investment discipline: SIP vs RD benefits explained
When it comes to investment options, understanding the difference between Banks’ Recurring Deposits (RDs) and Mutual Fund SIPs can help you choose the best option for your financial goals. Both have their own advantages and cater to different types of investors. By comparing their features, you can decide which option aligns better with your investment strategy.
What is SIP?
Systematic Investment Plan (SIP) allows you to invest a fixed amount in Mutual Funds regularly. It offers flexibility and helps inculcate a disciplined savings habit, enabling you to accumulate wealth over time. SIPs are ideal for investors looking for long-term growth potential with manageable risk.
What is RD?
A Recurring Deposit (RD) is a fixed amount deposited regularly in a bank, earning interest at a pre-determined rate. It is a safe investment, offering guaranteed returns over a specific tenure.
Similarities between Recurring Deposits vs SIP
- Regular investment: Both require regular investments, encouraging a disciplined savings habit.
- Accessibility: Both are easily accessible through banks or financial institutions.
Mutual Fund SIP vs Bank RD
| Factor | Mutual Fund SIP | Bank RD |
|---|---|---|
| Returns | Potential for higher returns linked to market performance | Fixed, guaranteed returns determined by the bank |
| Premature withdrawal | Partial withdrawals are allowed but may be subject to exit load. | Premature withdrawal is allowed but with a penalty. |
| Tax implications | Capital gains and dividend are taxable | Interest is taxable, and TDS is deducted if interest exceeds ₹40,000 per annum |
| Cost of investing | Expense ratio and exit load | No additional costs apart from the nominal penalty for premature withdrawal |
| Risk | Market-linked, hence involves higher risk but also the potential for better returns | Low risk with assured returns, making it suitable for conservative investors |
| Liquidity | High | Medium-to-High |
| Safety | Subject to market risks. | Highly safe as the investment is secure with a bank, along with guaranteed returns. |
Also Read: How to open an RD account online? - Step-by-step guide
Mutual Fund SIP or Bank RD: Which investment option suits you best?
Choosing between Mutual Fund SIP or RD depends on your risk appetite, investment horizon and financial goals. If you seek higher returns and are comfortable with market risks, SIP is a better choice. However, if safety and assured returns are your priorities, then RD is more suitable.
Axis Bank offers a convenient Recurring Deposit option with a minimum investment of ₹500, flexible tenures ranging between 6 months and 10 years.
Axis Bank's Mutual Fund services provide a range of SIP options to help you achieve your long-term financial goals.
By understanding the difference between SIP and Recurring Deposit, you can strategically plan your investments to meet your financial aspirations.
Disclaimer: This article is for information purpose only. The views expressed in this article are personal and do not necessarily constitute the views of Axis Bank Ltd. and its employees. Axis Bank Ltd. and/or the author shall not be responsible for any direct / indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information. Please consult your financial advisor before making any financial decision.
Mutual Fund investments are subject to market risk, read all scheme related documents carefully. Axis Bank Ltd is acting as an AMFI registered MF Distributor (ARN code: ARN-0019). Purchase of Mutual Funds by Axis Bank’s customer is purely voluntary and not linked to availment of any other facility from the Bank. T&C apply.
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