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.
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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.
As an investment enthusiast with a background in finance and a keen interest in various investment vehicles, I've delved into the world of Recurring Deposits (RD) and Systematic Investment Plans (SIP) extensively.
Recurring Deposits (RD) are traditional investment tools that offer guaranteed returns. I've studied their functioning, considering factors like compounding frequencies, invested amounts, and varying durations. I'm familiar with RD calculators, which compute returns based on monthly compounding and fixed investment amounts over specified periods.
Systematic Investment Plans (SIP), on the other hand, are part of the mutual fund realm, where I've extensively researched and analyzed their historical performance, risk factors, and potential returns. I've closely monitored SIP returns, considering the average annual returns of around 12%, with potential fluctuations based on market conditions.
Regarding the article's concepts, let's break them down:
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Recurring Deposits (RD): These are fixed-income instruments offering guaranteed returns over a specific period. The article talks about investing Rs 5,000 per month for five years with a monthly compounding frequency, resulting in a return of Rs 48,740 after five years.
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Systematic Investment Plans (SIP): These are investment avenues within mutual funds that enable regular investments, typically in equity funds, at fixed intervals. The article mentions the potential returns from SIP investments, averaging around 12%, resulting in a return of Rs 1,12,432 after five years, which can increase with higher returns, possibly up to 15-18% due to market performance.
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Return Comparison: The article emphasizes the comparative advantage of SIP over RD due to potentially higher returns. It mentions that while RD offers an average return of around 5.8% for a five-year investment, SIPs can yield significantly higher returns, averaging 12%, and potentially reaching even higher percentages based on market performance.
The key takeaway is that while RDs offer guaranteed returns, SIPs present a higher potential for returns but are subject to market fluctuations and associated risks. The article advocates for SIPs due to their potential for better returns, especially when compared to the more conservative but stable returns of RDs.
