Recurring Deposit vs SIP — Which Monthly Investment is Better?

SIP in equity mutual funds delivers 12-15% CAGR over 10 years vs RD's 6.5-7% with full tax on interest. SIP wins for goals beyond 5 years. RD is better for conservative investors who cannot tolerate any short-term loss and need guaranteed maturity amounts.

Last updated: 2026-04-06

Side-by-Side Comparison

Dimension	💳 Recurring Deposit	📈 SIP (Mutual Fund)
Returns	6.5-7% (quarterly compounding)	✓12-15% CAGR (equity, 10Y average)
Risk	✓Zero — guaranteed returns	Market-linked, can be negative in short term
Tax treatment	Interest taxed at slab rate (up to 30%+)	✓LTCG 12.5% above ₹1.25L after 1Y
Post-tax return (30% slab)	~4.5-4.9%	✓~11-13% (most gains under ₹1.25L exempt)
Premature withdrawal	Allowed with 1% penalty	Anytime (exit load 1% within 1Y for equity)
Auto-debit convenience	Yes — fixed monthly deduction	Yes — SIP mandate via bank/AMC
Minimum amount	✓₹100-1,000/month	₹500/month

Returns

💳 Recurring Deposit

6.5-7% (quarterly compounding)

📈 SIP (Mutual Fund)

✓ 12-15% CAGR (equity, 10Y average)

Risk

💳 Recurring Deposit

✓ Zero — guaranteed returns

📈 SIP (Mutual Fund)

Market-linked, can be negative in short term

Tax treatment

💳 Recurring Deposit

Interest taxed at slab rate (up to 30%+)

📈 SIP (Mutual Fund)

✓ LTCG 12.5% above ₹1.25L after 1Y

Post-tax return (30% slab)

💳 Recurring Deposit

~4.5-4.9%

📈 SIP (Mutual Fund)

✓ ~11-13% (most gains under ₹1.25L exempt)

Premature withdrawal

💳 Recurring Deposit

Allowed with 1% penalty

📈 SIP (Mutual Fund)

Anytime (exit load 1% within 1Y for equity)

Auto-debit convenience

💳 Recurring Deposit

Yes — fixed monthly deduction

📈 SIP (Mutual Fund)

Yes — SIP mandate via bank/AMC

Minimum amount

💳 Recurring Deposit

✓ ₹100-1,000/month

📈 SIP (Mutual Fund)

₹500/month

Verdict

For any goal beyond 5 years, SIP is the clear winner — the return gap widens dramatically with time due to compounding. RD is suitable for 1-2 year goals where you want guaranteed maturity (e.g., saving for a vacation or down payment). Do not use RD as a long-term wealth building tool — inflation will erode your real returns after tax.

Best For

💳Recurring Deposit

Short-term goals (1-2 years) needing guaranteed maturity value

📈SIP (Mutual Fund)

Long-term wealth building (5+ years) with inflation-beating returns

Related Calculators

💳RD Calculator 📈SIP Calculator 🏛️FD Calculator

Frequently Asked Questions

Is RD better than SIP for 1 year?+

Yes. For a 1-year horizon, RD guarantees your return (6.5-7%) while SIP in equity can show losses. Use liquid/ultra-short debt funds or RD for sub-2-year goals.

Can I do RD and SIP together?+

Absolutely. A smart approach: RD for your emergency fund buildup and 1-2 year goals, SIP in equity for 5+ year goals like retirement, child education, or house down payment.

How much tax do I pay on RD interest?+

RD interest is taxed at your income tax slab rate. TDS of 10% is deducted by the bank if total interest across all FDs/RDs exceeds ₹40,000/year (₹50,000 for senior citizens).

Disclaimer: This comparison is for informational purposes only and does not constitute financial advice. Historical returns are not indicative of future performance. Tax rules are as per FY 2026-27 and may change. Consult a SEBI-registered financial advisor before making investment decisions.