A habit of putting a little money–Rs 2,000 to Rs 5,000– into a recurring investment instrument for a long period of time is a proven path to accumulating a handsome corpus for retirement or other long-term needs. Meanwhile, this recurring investment could be contributed to in a risk-free scheme–like a Recurring Deposit– or in a market-linked product–Systematic Investment Plan (SIP)-- based on the risk appetite and financial goal of an individual.
Let’s assume two 45-year-old persons plan to put Rs 5,000 monthly for investment. The twist is, the first one wants fixed returns on his investment, while the other has a risk appetite to put it into market-linked schemes.
Now, let’s calculate who is going to have what amount at the age of retirement— 60 years.
Rs 5,000 SIP Calculation For 10 Years
If the second person pledges a Rs 5,000 monthly SIP with an expectation of a 12 per cent compounding rate. Here is the calculation.
Metric | Amount / Details |
|---|---|
Monthly Investment | Rs 5,000 |
Investment Period | 15 years |
Deposit in 15 years | Rs 9,00,000 |
Total Earnings (12% Return) | Rs 14,79,657 |
Total Estimates (Earnings + Returns) | Rs 23,79,657 |
Rs 5,000 RD calculation
Let’s calculate the estimated corpus for the first investor. The estimated return rate for the RD deposit here is 7 per cent. The first tenure for the RD would be 10 years, as banks usually have a maximum of 10 years for RD schemes.
Rs 5,000 RD For 10 Years
Metric | Amount / Details |
|---|---|
Deposit in 10 years | Rs 6,00,000 |
Total Return with 7% return | Rs 8,79,030 |
Profit amount | Rs 2,79,030 |
RD for another 5 Years
Metric | Amount / Details |
|---|---|
Deposit in 5 years | Rs 3,00,000 |
Total Return (7% Return) | Rs 3,59,663 |
Profit Amount | Rs 59,663 |
Which is better between an SIP and an RD?
SIP is a method of investing in mutual funds, debt and other instruments. Usually, an SIP is linked to the stock market and is subject to fluctuations. In the long term, you can expect to earn average returns; however, if the market falls, the earnings could go down.
RD is a fixed return rate and a risk-free investment instrument. It offers an interest rate of 6-7%. The most important feature of this scheme is its safe and secure nature.
Disclaimer: This story is for informational purposes only. It should not be construed as investment advice. All the calculations are based on assumptions only. Please seek professional advice before investing.