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4 Reasons To Choose Recurring Deposits Over Sip
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Both Systematic Investment Plan (SIP) and recurring deposits in banks are used to give large amounts in return over a long period of time. In these investments, the effect of compounding helps both deliver handsome returns. Both of these invest mentions options have different features and benefits. In this article, we give you 4 reasons why you should choose recurring deposits over (SIP) Systematic Invest Plans.
• Assured Return
With a recurring deposit, you can achieve short term goal. For example: a car, or a piece of land. In case of recurring deposits, the interest rate offered by the bank remains the same throughout the tenure of the investment, thus protecting investors from market fluctuations or variations in the interest rates. Most of these interest rates provide you a good return. Some banks even offer the option of taking a loan against recurring deposits. However, you will need to factor in the post-tax returns, even though you are sure of the maturity of the recurring deposits. But, SIPs will remain vulnerable to market fluctuations.
• Low Risk Product
In SIP, the return potential is higher, but so are the risks. Especially in the short term, an investment in the stocks will definitely be risky, as the market conditions play an important role in the returns. In recurring deposits, there are no risks, and the returns are fixed and guaranteed, irrespective of the changing market conditions. Since SIP’s require a fixed amount every month, there is a high chance you can lose more than you gain with the fluctuating market rates. As a low-risk product, it is definitely better suited for the families, senior citizens and people without any knowledge of market fluctuations.
• Emergencies situation
If an emergency situation arises, and you cannot invest in that particular month, you will be unable to do so with SIP. You will have to cancel the SIP which is a not only long and tiring process, but you also will have to inform in 2 to 3 weeks in advance because the AMC takes certain time to complete the procedure. If you want to restart this process, you will have to go through the whole formalities. With a recurring deposit you can easily get a loan for the emergency situation. As this does not involve cancellation, you can easily get the finance in an emergency situation.
Thus from the above reasons, we can see that a recurring deposit is a better form of investment than a Systematic Investment Plan.
Author Bio :- Neha Sharma; a finance student, loves to write Recurring Deposit. She would like to share her experience with the public in the hope that they benefit and understand the process of it.
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