SIP vs RD — Which Gives Better Returns?
Both SIP and Recurring Deposit let you invest monthly. But the returns difference over time is massive. See the numbers.
SIP vs RD Calculator
Compare monthly investment returns side by side
SIP (Equity Mutual Fund)
Recurring Deposit (After Tax)
SIP generates ₹7.78 L more than RD over 10 years. That is 50% higher!
SIP vs RD: Complete Comparison
| Parameter | SIP (Mutual Fund) | Recurring Deposit |
|---|---|---|
| Returns | 10-15% p.a. (equity, long-term) | 6-7% p.a. (bank RD rates) |
| Risk | Moderate to High (market-linked) | Very Low (bank guarantee) |
| Tax on Returns | LTCG 12.5% above ₹1.25L (after 1 yr) | Fully taxable at slab rate (up to 30%) |
| Liquidity | High — redeem anytime | Low — premature withdrawal penalty |
| Flexibility | Change amount, pause, stop anytime | Fixed amount and tenure |
| Minimum Amount | ₹500/month | ₹500-1,000/month |
| Inflation-Beating | Yes — beats inflation by 5-8% | No — post-tax returns often below inflation |
| Guarantee | No guarantee (market-linked) | Guaranteed returns (DICGC up to ₹5L) |
| Best For | Long-term goals (5+ years) | Short-term goals (1-3 years) |
The Tax Advantage of SIP over RD
RD Tax (30% Bracket)
On ₹1 lakh interest, you pay ₹30,000 tax. Effective return drops from 6.5% to 4.55%.
SIP Tax (LTCG)
On ₹1 lakh gain (after 1 yr), you pay only ₹12,500 tax. First ₹1.25L/year is tax-free.
Tax Saving
SIP saves you 17.5% on every rupee of returns compared to RD in the 30% tax bracket.
Frequently Asked Questions
Common questions about SIP vs RD
Is SIP better than Recurring Deposit?
For long-term investments (5+ years), SIP in equity mutual funds has historically delivered significantly higher returns than RD. While RD offers guaranteed returns of 6-7%, equity SIPs have delivered 12-15% historically. However, RDs are safer for short-term goals (1-3 years) where capital preservation is important.
Is RD interest taxable?
Yes, RD interest is fully taxable at your income tax slab rate. If you are in the 30% bracket, you pay 30% tax on all RD interest. Additionally, TDS is deducted if total interest exceeds Rs 40,000 per year (Rs 50,000 for senior citizens). This significantly reduces the effective RD return.
Can I lose money in SIP but not in RD?
Yes, SIP in equity funds can show negative returns in the short term (1-3 years) during market downturns. RD principal and interest are guaranteed by the bank (up to Rs 5 lakh under DICGC). However, over 7+ years, equity SIP has never delivered negative returns historically in India (based on Nifty 50 data).
What is the minimum amount for SIP vs RD?
Most mutual fund SIPs can be started with as low as Rs 500 per month, and some even allow Rs 100 SIPs. Bank RDs typically require a minimum of Rs 500-1,000 per month. Both are accessible to small investors, but SIP offers greater flexibility to change amounts.
Should I move my RD money to SIP?
If your goal is more than 5 years away, moving from RD to equity SIP can significantly boost your returns. However, keep an emergency fund equivalent to 3-6 months of expenses in safe instruments like RD or savings account. Do not move short-term goal money (needed within 3 years) from RD to equity SIP.
Switch from RD to SIP for Better Returns
Your monthly savings deserve better growth. Start an equity SIP today.
Disclaimer: Mutual fund investments are subject to market risks. RD rates vary by bank and are subject to change. The comparison is for educational purposes only. | Trustner Asset Services Pvt. Ltd. | ARN-286886