Bank Recurring Deposit vs Systematic Investment Plan
Difference Bank Recurring Deposit and Systematic Investment Plan
| Basis of Difference | Recurring Deposit (Bank RD) | Systematic Investment Plan (SIP) | |
|---|---|---|---|
| Type | Bank Account | Vs | Mutual Fund |
| Objective | To induce a habit of regular saving | Vs | To induce a habit of regular saving and good long term capital appreciation |
| Meaning | An account in which the investor needs to deposit the pre-specified amount at periodical intervals for a long term | Vs | A long-term instrument which generates tax-efficient maturity |
| Investible amount | In instalments- usually monthly instalments | Vs | In instalments- usually monthly instalments |
| Maximum Investment Amount | No such limit | Vs | No such limit |
| Interest Rates | Varies from bank to bank- dependent upon tenure | Vs | Dependent on debt and equity markets and is also based on the fund scheme chosen by the investor |
| Interest Rates Compounding | Quarterly | Vs | Daily |
| Interest earned is taxable | Yes, as per investor's income tax slab | Vs | No- in case of Equity MF and Yes- in case of Debt MF |
| Liquidity | Yes | Vs | Yes |
| Tenure | 6 months to 10 years | Vs | Generally 3 years or above |
| Income Tax Rebate u/s 80C | No | Vs | Yes, upto Rs 1,50,000/- p.a., if invested under ELSS |
| Maturity | Taxable | Vs | Tax Free, in case of Equity MF and withdrawn after completion of 1 year from the date of investment |
| Premature Withdrawals | Entire amount, anytime but after charging a certain penalty , banks generally charge 1% as penalty. Partial withdrawals are not allowed | Vs | Entire amount, anytime but after charging a certain exit load , mutual funds generally deduct 1% exit load. Partial withdrawals are also allowed |
| Loans | Loan facility available upto 90% of the deposit value in the RD where the RD needs to be pledged as collateral and the interest rate to such loan is around 0.5% to 2% higher than the fixed deposit rate | Vs | No |
| Tax Deduction at Source | Yes, at the rate of 10% on interest earned, if it exceeds Rs. 10,000 in one financial year. To avoid TDS, investor can submit Form 15G (for age below 60)/ Form 15H (for age above 60). | Vs | No |
| Risk | Less risky as compared to Equity oriented SIP | Vs | More risky as compared to Bank RD |
| Periodic income | No | Vs | No |