Recurring Deposits Or Mutual Funds, The Better Option To Invest In?

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RDs have a lock-in period. You can't withdraw your money before the tenure is up.

RDs have a lock-in period. You can’t withdraw your money before the tenure is up.

SIP investment is the best tool for building a long-term corpus in the stock market through mutual funds dealing in equity.

The highest-ever monthly systematic investment plans (SIP) inflow in mutual funds (MFs) of Rs 12,693 crore was recorded in August 2022. It’s obvious that over time, a lot of investors have come to appreciate the advantages of making staggered investments. However, there is another option where you can make methodical investments. And in that, despite the modest profits, the risk is much lower than with mutual funds. We are talking about recurring deposits (RDs).

The capital of investors is guaranteed by debt securities called recurring deposits (RDs). Banks give RDs with terms ranging from one to ten years. The facility enables investors to make a fixed monthly investment and accumulate funds for immediate requirements.

Similar to mutual fund SIPs, a discipline is gained from investing in RDs. The disadvantage is that you must have money to invest after each month, just like with a mutual fund SIP. Taxes apply to RDs as both the invested money and the income are subject to the appropriate tax rates.

Both RDs and SIPs enable investors to make a series of modest investments over time to accumulate capital. They also provide a lot of freedom. You have the option to withdraw your money and stop your RD and SIP at any moment. However, if you withdraw money too soon from your RD account, some banks may charge you a fee.

MF SIPs offer more freedom. You can make daily, weekly, biweekly, monthly, quarterly or yearly investments in them. In contrast to an RD, which is similar to a debt instrument, MFs also let you engage in stocks through SIPs.

The SIP investment amount in the stock market is the ideal instrument for creating a long-term corpus. SIPs typically function best when you invest for five years or longer. RDs have a lock-in period. You can’t withdraw your money before the tenure is up.

On the other hand, you can simply pause or end your SIPs any time you want. Only SIPs in Equity Linked Savings Scheme (ELSS) have a three-year lock-in period.

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