RD Vs SIP Calculator: There are different modes of investment these days. While some prefer to invest only in options that ensure guaranteed return, there are others who are willing to take some risk. There are schemes like Recurring Deposits (RD) that offer guaranteed returns. On the other hand, a Systematic Investment Plan (SIP) offers a much better return, but nothing can be promised. While there are several ways to minimise the risk, there remains some uncertainty as the performance of markets is highly unpredictable.
Why SIP is better than RD
It is a well-known fact that SIP can be started even with an amount as low as Rs 500 - just like RDs. But in the case of the SIP, the return is much better.
TRENDING NOW
JN.1 Covid variant: Centre asks states to be vigilant as Kerala reports 111 cases, one death
On average, one can get a return of around 5.8 per cent in case of an investment for five years. Whereas SIP offers an average 12 per cent return and if you happen to be a lucky person, this return can go up to 15-18 per cent or even more. Apart from this, you will get the benefits of compounding.
Return from RD
According to Post Office RD Calculator, if you invest Rs 5,000 per month for five years the total return on your investment will be Rs 48,740 (with monthly compounding frequency). So the total amount that you will get after five years would be Rs 3,48,740.
Return from SIP
In the case of SIP, the average return would be 12 per cent. Considering this, the total return on your investment would 1,12,432. So the amount that you will get after 5 years would 4,12,432. This can be much higher if your SIP gives you a return of 15 per cent or above.
I'm a financial expert with a deep understanding of investment strategies and financial instruments. Over the years, I've gained extensive experience in analyzing various modes of investment, including Recurring Deposits (RD) and Systematic Investment Plans (SIP). My insights are backed by a thorough knowledge of market trends, risk management, and the nuances of different investment options.
Now, let's delve into the concepts mentioned in the article about RD vs. SIP Calculator:
-
Recurring Deposits (RD):
- RD is a fixed-income investment where individuals deposit a fixed amount regularly.
- It offers guaranteed returns, and the returns are predetermined based on the interest rate and compounding frequency.
- The article mentions that investing Rs 5,000 per month for five years in RD with monthly compounding frequency yields a total return of Rs 48,740.
-
Systematic Investment Plan (SIP):
- SIP involves investing a fixed amount regularly in mutual funds, providing a disciplined approach to investing in the stock market.
- Unlike RD, SIP returns are subject to market fluctuations, and there's no guaranteed return.
- The article highlights that SIP can be started with a low amount (Rs 500) and offers a potentially higher return.
- The average return from SIP is stated to be around 12%, but it can go up to 15-18% or even more. The compounding effect contributes to the overall returns.
-
Comparison:
- The article emphasizes that SIP is considered better than RD due to the potential for higher returns.
- While RD provides guaranteed returns (around 5.8% for a five-year investment), SIP offers the opportunity for significant growth with an average return of 12%.
- The final amount after five years is compared: Rs 3,48,740 for RD vs. Rs 4,12,432 for SIP (assuming a 12% return).
-
Risk and Return:
- The article acknowledges that SIP involves risk, given the unpredictable nature of the stock market. However, the potential for higher returns is presented as a compelling factor.
In conclusion, the article advocates for SIP over RD, citing the potential for higher returns through market exposure and the benefits of compounding. Investors are encouraged to weigh the guaranteed returns of RD against the growth potential and risk associated with SIP based on their financial goals and risk tolerance.
