17 Apr

Systematic Investment Plan (SIP) is a method to invest in a mutual fund in which a small amount is invested at a regular interval. Every small investment assigns a fixed number of units to the investor based on prevailing NAV. In recurring bank deposits, a fixed amount is periodically deposited in banks which pay interest on the deposited amount. SIP as well as RD are a periodic investments but there are multiple reasons due to which SIP has the upper hand over RD. 

Better Returns

SIPs in mutual funds provide higher returns than the recurring deposit. The interest rate for RDs is generally around 6% while through SIP in mutual funds, an investor can earn a minimum of 8% annually which can increase or decrease depending upon the type of fund selected. The returns generated through SIPs are much higher than bank deposits. 

Liquidity

SIP investments in mutual funds are highly liquid and the investments can be started, stopped or redeemed any time as per the wish of the investor. An exit load might be applicable which is a small amount deducted for redemption within a known period. The recurring deposit plan of banks lock the invested amount for a fixed tenure. Such investments cannot be redeemed at any time and incur higher tax implications.  

Convenient to Invest

With the facility of automatic deduction, the investor need not worry about investing every month. A predefined amount can be automatically deducted and invested in the selected mutual fund through SIP investment. The SIP amount can also be as low as Rs 100 whereas, in the recurring deposits, the amount needs to be manually invested or need to be given to the intermediaries.

Inflation

The interest rate provided by the bank deposits is much lesser than the average inflation rate. To maintain the buying power of your investment it is essential to expect a better interest rate than the inflation rate. Even the least risky mutual funds like liquid funds or ultra short term funds provide better returns than the bank deposits. The inflation rate for the last decade is more than 6% while the bank provides the lesser gain that which means the invested amount in bank deposit is likely to lose its buying power. 

Wide Variety

Mutual funds offer a wide variety of products. Every scheme has a different objective and follows a different strategy to achieve that objective. Within the same category, multiple schemes are available provided by different asset management companies. Hence the SIP investors have multiple options which can be chosen according to the requirement and suitability of the investor. The competition among the AMC to provide better outcomes result in the good of the investors as they get to choose a better scheme.

Systematic Investment Plan has multiple benefits over the recurring bank deposits. The RD is an old and outdated investment strategy which provides much lesser returns compared to SIPs. Although those investors who cannot take any risk in the investment world should still opt for a recurring deposit while those who want to earn better returns and achieve all the financial objective can choose the SIP mode of investment in mutual funds. Start your journey towards successful investing today by downloading our android and iOS app from the link provided below. 

Android App - https://play.google.com/store/apps/details?id=com.mysiponline 

IOS App - https://itunes.apple.com/us/app/mysiponline/id1246082058?ls=1&mt=8 

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