In terms of liquidity, a SIP is better when compared to RD. SIP can be closed and the money can be withdrawn without any penal charges. Recurring Deposit amount or the interest earned on it are not exempted from tax.
Are Recurring Deposits better than mutual fund? Recurring Deposits and Mutual Fund both have their own features and benefits. Recurring Deposit is low risk investment tool while mutual fund bears higher risk. On the other hand, Mutual Fund has higher liquidity as compared to Recurring Deposits.
SIP and RD are two popular saving plans among retail investors, which serves the purpose of long-term wealth creation. SIP is an investment plan in mutual funds, on the other hand, RD is a recurring deposit in banks. But still, they have many differentiations.
Investing in an RD scheme is a great option for salaried people as they do not have to invest a lump sum amount at one time as is the case in Fixed Deposits. In RD investments, the investor needs to invest only a part of their income every month, the amount of which is predetermined.
SIP is better option than RDs when talked about liquidity. You can close SIP and withdraw money without paying any penalty. RD is a liquid scheme but you can go for premature withdrawals. In case of closure you might have to pay penalty charges.
Recurring Deposits are not prone to risks and is one of the safest form of investment. Returns that you can expect from the SIP are variable. There can be a risk of capital and returns depending on the stock market. But, recent data shows us the SIP gives good returns if held for a long period of time.
An RD is a good investment avenue for risk-averse investors who want to invest money every month. RDs also help fulfill both short-term and long-term goals. Since the returns are assured, you can strategize across all time-frames. RDs can also be an ideal instrument to build an emergency fund.
The interest amount earned at the end of maturity of a Fixed Deposit is higher than the interest earned on an RD. The interest amount earned is lesser than the interest earned on an FD. The interest earned on an RD is paid on maturity along with the capital amount.
As discussed earlier recurring deposit is liquid but premature withdrawal would incur a penalty with a fixed rate. Money can be withdrawn from SIP in debt funds without incurring a penalty on it and the SIP can be closed. In terms of liquidity, a SIP in debt funds is a better option when compared to RD.
A Recurring Deposit is like a Fixed Deposit. Once the RD amount has been deposited, it cannot be withdrawn until maturity. Partial withdrawals from the account are not allowed.
PPF is less liquid. You can only withdraw the investment amount after the 7th year from the date of opening your PPF account. SIPs are prone to a higher level of risk as they are influenced by equity market performance. PPF offers guaranteed returns and is, therefore, a safer investment option.
Is RD interest taxable?: Recurring Deposits attract no tax exemptions. Income tax has to be paid on the Interest amount received from Recurring Deposits. The tax has to be paid at the rate of the tax slab of the RD holder.
RD accounts fetch you more interest than savings bank accounts and make you avail the benefits of FDs without making lump sum investments. RDs help you inculcate a habit of regular investments out of your salary that generates a higher return in the long term, than keeping the money in a savings account.
The interest rate for FD is slightly higher than that of RD. The interest rate varies between 5.25% to 7.90% for a tenure of one year. The rate of interest usually depends on tenure and monthly investment amount. For fixed deposit, a tax exemption under the section 80C of Income Tax Act 1961 is applicable.
RD accounts come with a lock-in period of 30 days-3 months subject to the bank's discretion. Withdrawal within the lock-in period will not fetch any interest. A single account holder can open any number of RD accounts. Advance deposits are allowed by a few banks and by the Post Office.
Yes, there is a possibility of losing money in a mutual fund. The basics of a mutual fund is that you have a mutual fund manager: he or she is in charge of the fund; he selects the stocks, he may trade the fund; he may select groups of stocks to invest in, and that makes up the mutual fund.