Post Office RD Vs Mutual Fund SIP: Investment Goal, Instalments, Tax and Benefits Compared

The first-time investor who wants to build their investment corpus can opt to invest a lump sum in Mutual funds or Bank Fixed Deposits. Here, come the monthly investment schemes such as Recurring deposits and Systematic Investment Plans (SIP). Both offer a great investment option for salaried individuals to save and invest money easily. A Recurring Deposit is a unique term deposit that is offered by Indian Banks and India Post (Post Office). These are the two most common strategies to invest a predetermined amount every month.

SIP and Recurring Investing ensures present and future financial security. It enables investors to increase their wealth while also generating inflation-beating returns. Compounding is also advantageous to you. When comes to investing monthly most investors are confused between SIP and Recurring deposits. Here, we have covered the Post office recurring deposit scheme and Mutual fund Sip investment scheme.

Post Office Recurring Deposit

The Recurring Deposit offered by India Post offers good returns on opening a recurring deposit account with them. Individuals can register a 5-year post office recurring deposit account using the Post Office savings plan.

Every quarter, interest is compounded, ensuring that a quantity of money has multiplied by the time it matures. Individuals who want to create a Post Office RD must currently keep their deposits valid for a minimum of five years.

Post Office Recurring Deposit plans designed to help consumers develop a habit of saving on a regular basis. It frequently gives flexibility and convenience of investing to users/individuals due to the regular deposit aspect and an interest component.

What it Offers?

• Guaranteed Returns - Offers guaranteed returns through interest rates of up to 5.8%. (quarterly compounded)
• Liquidity - No premature closure of account shall be permissible until the period for which the advance deposits have been made.
• Applicable taxes - Earned interest is tax-free.
• Investment limit - No upper limit applicable.
• Instalment - Minimum Amount for monthly deposit is Rs. 100 and above minimum in multiple of Rs. 10.
• Investment Goal - Recurring Deposits usually serve short-term savings goals and do not help in long-term wealth growth.

 

Mutual Fund SIP

Mutual funds are one of the most popular investment options since they help you achieve your financial goals. Mutual funds are also a tax-advantaged investment.

Mutual Fund SIP is a method of investing a little amount in a mutual fund plan on a regular basis. When you activate a SIP, a predetermined amount is deducted from your bank account each month and invested in the mutual fund of your choice.

Every time you invest in a mutual fund scheme through a SIP, you purchase a certain number of fund units corresponding to the amount you invested. You don't need to time the markets when investing through a SIP as you benefit from both bullish and bearish market trends.

What it offers?

• Guaranteed Returns - Returns are not guaranteed because they are exposed to market risks.
• Liquidity - Offers liquidity by enabling investors to withdraw without any exit charge.
• Applicable taxes - If a SIP of an equity fund is held for less than 12 months, there will be short-term capital gain taxable at 15%. But if a SIP of an equity fund is held for 12 or more months, then there will be long-term capital gain taxable at 10% in excess of Rs.1,00,000/-. ELSS investment Exempted from Tax.
• Investment limit - No upper limit.
• Instalment - Easy monthly instalments for Systematic Investment Plan (SIP), starting as low as Rs. 500.
• Investment Goal - SIPs can help in all kinds of investments goals, whether short- or long-term, depending on the frequency of investment, funds chosen, and other factors.

Conclusion

The most common strategies to invest a predetermined amount every month are the SIP in mutual funds and the Recurring Deposit. Opening an Recurring Deposits or starting a SIP are the best solutions for consumers who want to invest a predetermined amount every month rather than a large one-time commitment. When it comes to liquidity, SIPs are a better alternative than Recurring deposits. You can cancel your SIP and withdraw your funds without incurring any penalties. Although RD is a liquid plan, you can make early withdrawals. In the event of a shutdown, you may be subject to penalty charges.