Recurring Deposits vs SIPs: Where Should You Invest Rs 5,000 A Month In FY26?

Investing regularly is a smart way to grow your wealth over time. It is important for every person to take out some portion of their salary or business income every month to invest in different instruments, which could be helpful for long-term wealth accumulation.

Among the most popular saving and investment options are the Systematic Investment Plan (SIP) and the Recurring Deposit (RD). If you are confused about what to choose between the two, then here are the key details to know.

SIP investments could provide higher returns compared to Recurring Deposits (RDs). However, RDs could be suitable for investors looking for secure investment options. Choosing between the two should depend on your investment horizon, risk appetite and financial targets.

Both SIP and RDs allow building wealth with regular investments. Through an SIP, you invest a certain amount in mutual funds, whereas through RDs, you deposit a fixed amount in banks or post offices.

The major difference between the SIP and RD is the interest rate. In RD, the interest rate is fixed by the bank or post office, while in SIP, the returns are not fixed and depend on how the market performs.

Currently, RD interest rates vary between 6% and 8% across banks. A few banks offer RD interest rates up to 8.5% per annum for senior citizens. The SIP return rates could be an average for a period of one to three years for certain mutual fund schemes, however, this can widely vary due to market fluctuations.

In RD, you get a fixed return of around 6 to 7% per annum, depending on the bank. So, if you invest Rs 5,000 per month for 5 years at 6.5% per annum, the corpus fund will grow into Rs 3.55 lakh. You will get a return of Rs 55,000 on an investment of Rs 3 lakh over the entire tenure.

It’s considered a more secure investment option as the interest rate remains fixed for the entire tenure.

However, if you are open to investment instruments offering higher returns, SIPs could be a suitable option. But, the mutual funds are considered as more risky investment instruments, compared to RDs.

Let’s assume an annual return of 15% in a mutual fund for your monthly investment of Rs 5,000. The SIP will grow into Rs 4.48 lakh, with a total return of Rs 1.48 lakh.

When it comes to flexibility, SIP could be a better option. In RD, you will have to invest Rs 5,000 every month for a certain period, even if you face a financial crunch at any point in time. But in SIP, this is not the case, as it is more flexible. You can start, pause, increase or stop your investment anytime without paying any penalty or charges.

To conclude, it’s important to evaluate all key factors before choosing between SIPs and RDs. It should depend on your financial goals. If you are looking for a short-term investment with a fixed return and low risk, then RD could be a suitable option. However, if you are aiming for higher returns and long-term wealth accumulation, then SIP could be a better option.