When investing money, one of the main concerns on anyone’s mind is whether their money will be able to grow at the same rate as that of inflation. There are many different types of investments that are available in the market which are known for generating different amounts of returns. The same is applicable while opening a bank account, as there are different amounts of interest that are offered by different banks.
When comparing the two, one needs to put the risk appetite of the investor in mind. While it is far more advisable for younger investors to have a mix of both; where they have a higher proportion of SIP’s (as they can afford to take the risk); elder people (investors) who are far more conservative investors should opt for recurring deposits with fixed returns rather than SIPs. However, this choice has to be made by the investor.
There are basically two types of long-term investments where the investor can choose how much he/she wants to invest. These are Recurring Deposits offered by banks and Systematic Investment Plans offered by mutual fund companies.
A Recurring Deposit requires an investor to set a fixed sum of money every month and also earn a fixed rate of interest which is at the same rate of a fixed deposit. However, unlike fixed deposits as the depositor does not have to shell out a large amount at one time for the investment. These deposits are advised for people having low risk appetite. Investors can make use of the recurring deposit interest calculator online to help them calculate the maturity value (i.e. principal amount + interest earned) of the deposits that are made under recurring deposits.
On the other hand, SIP’s are linked to risky securities such as gold, equity or other fund portfolios. They are known to generate returns; based on the performance of the underlying security. They work differently from RD’s because of the way that every monthly instalment/deposit has the investor allocating a certain number of units that are based on the net asset value of the fund at that particular time. However, these returns on SIPs are not guaranteed and there may be times when the investor gets less returns.