SIP - which set of people can use ideally?
Posted on: 20/Aug/2018 2:36:47 PM
Though SIP (Systematic Investment Plan) and RD (Recurring Deposit scheme) seem identical, the benefits accrued from them are quite different.
The category of people who cannot afford to make large-scale investments resort to the avenues of making savings through the smaller saving schemes. For this purpose, the Recurring Deposit (RD) scheme helps. In a similar trend, SIP (Systematic Investment Plan) also helps. Investment in RD or SIP can be made either on a monthly or a quarterly basis, Both he schemes give the uniform benefits of saving. Though they are both basically appearing same, they have differences. Further, each of them is ideal for different categories of people who invest.
RD or the recurring deposit schemes come under the credit investment. In this, the investor can deposit a specific amount either monthly or quarterly for a specific duration. This RD account can be opened either in banks or the Post Offices. Generally, the duration of the RD schemes varies from 12 months to 120 months. The benefits are also clearly fixed. Depending on the time duration, the interest rates for RD varies. The element of risk in investment is minimal in this scheme.
Generally, the category of people not interested in risky ventures prefers this RD scheme. It is especially useful for those looking for a short-term target. This can be useful for certain plans like holiday expenses. However, as this is a credit investment, it is affected by factors such as inflation. So, the investments can be preferably made in SIP or Mutual Fund Schemes. Otherwise, it is preferable to opt for SIP with investment for a specific period.
Another option available is to mix both credit investments and mutual funds depending on the target and a decision can be made on SIP investment. The benefits of the investments made in mutual funds are not definite. These depend on the fluctuations in the stock markets. However, while investing in SIP, it will be beneficial if the judicious purchase of units is made watching the ups and downs in the stock market. So, it is better to deposit a fixed amount for a fixed duration.
Though RD is beneficial as fixed, SIP investment has various other beneficial avenues. For example, investments can be stopped when preferred. Otherwise, the money invested can be withdrawn. This will not affect the earnings. However, if an RD is withdrawn after a certain period, the interest rate will be reduced. Further, there are better prospects of more benefits in the credit investments as compared to the recurring deposit schemes. The taxation scheme on SIP is also a beneficial aspect.
Generally, the category of people under the lower Income Tax domain and for those who do not prefer any risks, SIP is most ideal. Thus. SIPs have the advantage of offering both the benefits earned through Mutual funds investments or credit investments.
