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RD vs SIP – Which One is the Better Option?
Reviewed by: Fibe Research Team
- Updated on: 23 Jun 2025
Reviewed by: Fibe Research Team
SIPs (Systematic Investment Plans) and RDs (Recurring Deposits) are two popular ways through which people in India save a fixed amount of money every month. They’re simple, help build a habit of saving and are great for anyone who wants to grow their money slowly and steadily.
Although they may appear similar, SIPs and RDs function differently and serve distinct purposes. Read on to know what they are, how they work and how they are different from each other.
RD and SIP are 2 preferred ways to grow your savings. Let’s break them down to understand how each works and which one suits you better:
Banks and post offices offer RDs, or Recurring Deposits, where you deposit a fixed amount every month for a chosen period. It’s a low-risk and steady way to save, especially if you prefer guaranteed returns. The interest rate is fixed when you start and gets added to your savings every 3 months, helping your money grow safely over time.
A SIP or Systematic Investment Plan is an easy way to start investing in mutual funds. You invest a fixed amount every month and over time, your money grows. It uses the power of compounding, which simply means you buy more units when prices are low and fewer when they’re high. Since SIPs are linked to the market, there is a bit of risk involved, but if you stay invested for the long term, the returns can be quite rewarding.
Here’s a quick comparison between SIPs and RDs to help you understand on what basis they both differ from each other:
| Feature | SIP (Systematic Investment Plan) | RD (Recurring Deposit) |
|---|---|---|
| Risk | Market-linked, moderate to high | Risk-free |
| Returns | Varies (8–15% historically) | Fixed (5–7% depending on the bank) |
| Liquidity | High (can be withdrawn anytime with NAV loss) | Low (premature withdrawal attracts a penalty) |
| Tenure | Flexible | Fixed (6 months to 10 years) |
| Investment Type | Mutual Funds (Equity/Debt/Hybrid) | Bank deposit |
| Taxation | LTCG or STCG, based on fund type | Interest is taxed as per the income slab |
| Ideal For | Long-term wealth creation | Short-term financial goals |
| Inflation Protection | Yes | No |
Understanding how returns are calculated in both options can offer deeper insights into the RD vs SIP formula difference.
Where:
M = Maturity amount, R = Monthly investment, n = number of months, i = annual interest rate
Due to compounding frequency and market exposure, SIPs often outperform RDs in the long run, despite the simplicity and safety offered by RDs.
The classic SIP or RD which is better debate boils down to your financial goals, risk appetite and investment horizon.
Certain factors are looked at before choosing between a recurring deposit (RD) and a systematic investment plan (SIP). First of all, you should focus on what suits you best and how much risk you are comfortable with. Before investing, people should measure how many ups and downs in the market they can handle and how much risk they plan to take. Second, time frame and financial objectives are important factors.
Fibe helps you learn how to handle your money wisely, whether you’re aiming for long-term wealth or seeking short-term financial support. You can also book an FD on the Fibe App starting from just ₹1,000 instantly, making it a convenient and accessible option for all types of investors.
Your risk tolerance and financial objectives will determine this. While RDs are best suited for short-term investments with assured returns, SIPs are better for building wealth over the long term.
SIPs in mutual funds are a better option than RDs if you can take moderate risk and are looking for higher returns, particularly for long-term investing.
Generally speaking, banks like SBI, HDFC and ICICI offer attractive rates, though the best RD for a year differs by bank. Checking the current RD rates is a good idea prior to making an investment.
