Difference between Recurring Deposit and Systematic Investment Plan
Keeping fix amount every month for the purpose
of investment or saving for creating wealth in the form of SIP or RD is a trending option in India.
Major difference between recurring deposit and systematic investment plan (SIP)
is RD is opened with bank where as SIP is managed by Mutual funds companies. In SIP, a person has to set aside fix amount
for every month or quarter for creating wealth where as in case of RD, we have
to set aside a fix amount every month for predefined period and at the end of
that period we get interest and amount invested.
Recurring Deposit Product Details: If you are planning a foreign trip, you may start an RD to create a handsome amount over the period of time. Recurring deposit is opened with bank or post office for predefined period for fix amount every month. In case of RD, interest rates are associated with tenor of RD. Tenor of RD varies from 06 months to 10 years. Senior citizens are offered bit higher rate of interest compared to others. Minimum amount that can be fixed monthly depends on financial institutes. Proceeds of RD are taxable. Interest earned on recurring deposit is subject to TDS (Tax deducted at source) if it exceeds Rs. 10000.00 per financial year.
Systematic Investment Plan Details: An SIP can be started by investing in mutual fund. Investor has to invest a fix amount every month or quarter. Minimum investment amount is Rs 500.00 Amount can be invested in debt or equity as per your choice. Recently equity mutual funds have generated good returns. It is always advised to be invested minimum up to 3 years for better return. Major disadvantage of SIP is that return on SIP cannot be predicted as it is linked with stock market. Return on SIP is linked to NAV (Net asset value).
Difference between Recurring Deposit and Systematic Investment Plan
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Sytematic Investment Plan
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Recurring Deposit
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Investment
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Investment in Mutual funds
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Investment in Bank, FI and Post Office
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Scheme
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Equity or Debt or Hybrid
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Fix Deposit Scheme
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Returns
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Subject to NAV of funds chosen
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Fixed return
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Risk
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High in case of Equity Investment
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Low Risk, almost No risk
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Liquidity
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SIPs are fully liquid, Subject to exist load if withdraw before
1 years
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Liquid, if withdraw prematurally penal rate is applied
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Tax
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Short term capital gain tax if withdraw before 1 year
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TDS is applicable if interest exceeds Rs 10000.00, Interest
earned is added to your income which in turns attract taxes
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Benefits of SIP are listed below:
Diversification of funds by funds manager
Management of funds by professional fund manager
Lower amount for entry
Easy liquidity
Flexibility of investment
Set your goals and move ahead and take a SIP
today which will defiantly in turns build a good corps.
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