SIP vs RD: Which Helps You Reach Your Wedding Goal Faster?
Saving early for weddings could be helpful in managing big-ticket expenses for the special day without hurting your long-term financial goals or emergency funds.
Weddings in India can be an expensive affair as people tend to mark their special day with grand celebrations. As a result, the cost can even rise into lakhs due to expenses on decoration, food, photography and wedding outfits, among others. This means saving early for weddings is a critical step to be able to fund hefty expenses without hurting your long-term financial goals or emergency funds.
While planning early is a smart financial move, it is also important to carefully choose investment instruments to optimise your returns.
A Systematic Investment Plan (SIP) and a Recurring Deposit (RD) could be suitable options to save for financial goals. In a mutual fund SIP, you invest a fixed amount regularly in mutual funds, which helps to gain exposure to market-linked equities. They have potential for higher returns and benefit from the power of compounding. However, this is a high-risk investment as stock market returns are never guaranteed.
In contrast, RDs allow you to contribute a fixed sum every month and earn guaranteed interest. This could be a suitable choice for investors looking for secure assets, compared to SIPs.
To understand which of these can build wealth faster, let’s do a calculation:
Assuming you want to save Rs 15 lakhs in 5 years, here’s how SIP and RD investments can grow:
Mutual fund investment
Target: Rs 15 lakh
Time: 5 years
Monthly investment: Rs 18,000
Expected return: 12%
Invested amount: Rs 10,80,000
Estimated returns: Rs 4,04,754
Total value: Rs 14,84,754
Investment in RD
Target: Rs 15 lakh
Time: 5 years
Monthly investment: Rs 18,000
Expected return: 6.4%
Invested amount: Rs 10,80,000
Estimated returns: Rs 1,94,618
Total value: Rs 12,74,618
Over 10 years, if an investor contributes Rs 10,000 monthly into an RD, the corpus is expected to grow to Rs 16.5 lakh at 6.15% return per annum. On the other hand, Rs 10,000 invested in SIPs for 10 years may yield over Rs 23 lakh, making them an ideal option in the long term.
It can be seen that SIPs have an edge over RDs due to their ability to generate higher returns. While RDs provide stability, SIPs can grow wealth faster over the long term.
However, investors should always consult a financial expert before making any significant investment commitments, as equity instruments pose financial risk due to market volatility.
