Will SIP give 'Super Fast' returns or will you become a millionaire through RD? Understand who is the real 'Baahubali' of your money and then invest the money!
Sip vs Rd: Saving is easy, but investing that savings in the right place is the real wisdom. Nowadays most people get confused between two options, bank's safe RD or market-linked SIP. Yes, while RD gives investors fixed interest and security of the amount, SIP promises super fast returns in the long term. However, the equation of risk and return is different in both. So let's know where to invest in both.
For years, everyone has been dreaming of creating a big fund by saving a little every month. But the question arises where to invest this hard-earned savings? Well, we have two most popular options - one is the bank's reliable RD (Recurring Deposit) and the other is SIP (Systematic Investment Plan) linked to the pace of the market. On one hand, there is a guarantee of security, and on the other hand, there is also the possibility of strong returns. So let's understand which of these two can be the best investment option for your hard-earned money.
Recurring Deposit (RD) is one of the best schemes offered by banks and post offices. In RD, investors deposit a fixed amount every month for a fixed time. RD is like a piggy bank, the only difference is that the bank gives a pre-determined interest on your deposited money. The biggest strength of RD is 'security'. By investing in RD, your money is 100% safe and returns are guaranteed. In this, you know from the beginning how much money you will get on maturity.
Systematic Investment Plan (SIP) is a way of investing in mutual funds. In mutual funds also you invest a fixed amount every month, but this money is invested directly in the stock market or bonds. In SIP your money increases or decreases with the fluctuations in the market. That is, the biggest strength of SIP is the 'power of compounding' and the possibility of 'high returns'. If investors invest in it for a long time, then they can create a very strong fund.
The whole game of RD and SIP revolves around returns. In RD, fixed interest of about 6% to 7.5% is available annually. While there is no guarantee of returns in SIP, it is possible to get an average return of 12% to 15% or even more in the long term (5-10 years). Let's assume that if you deposit ₹5000 every month for 10 years, then RD (at 7% interest): You will get around ₹8.7 lakhs and SIP (at 12% average return): You can get around ₹11.6 lakhs.
By the way, with higher returns in both, higher risk also comes. In RD, the risk is almost zero and both your principal and interest are safe. It is like a straight and flat road. But in SIP, there is risk as it is linked to the market, which has both fluctuations. However, the risk reduces in long term investments.
There is no direct answer to what is best for you in terms of investment, because it depends on your need and risk taking capacity. If you do not want to take any risk at all, your goal is short like 1 to 3 years and you want guaranteed returns. For example, if you want to save for your child's school fees or to buy a car after a year, then you can choose RD. But on the other hand, if you want to earn big profits by taking a little risk, your goal is longer than 5 years, like retirement planning, child's higher education or to create a fund to buy a house, then SIP is the best option for you.
