Investment
Recurring Deposit vs SIP
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Same disciplined monthly habit, very different long-term outcomes. See the compounding gap.
What Recurring Deposit and SIP in Equity Funds Actually Mean
Recurring Deposit. A bank instruction to move a fixed sum each month into a deposit paying a rate fixed when you open it. Every instalment earns that same contracted rate and the maturity value is known upfront.
SIP in Equity Funds. A monthly purchase of mutual fund units at whatever the NAV is that day. The number of units varies each month, and the final value is not known in advance.
These look almost identical — same amount, same date, same discipline. The one difference is what your money buys: an RD buys a promise, a SIP buys units. Everything else follows from that.
Key Differences
| Feature | Recurring Deposit | SIP (Equity) |
|---|---|---|
| Returns | Fixed (6–7%) | Market-linked (8–15%) |
| Risk | Zero — guaranteed | Market risk |
| Tax | Taxable at slab rate | LTCG 12.5% above ₹1.25L after 1yr |
| Minimum amount | ₹100/month (most banks) | ₹500/month |
| Best for | Short-term savings goals | Long-term wealth creation |
| Maturity value known upfront | Yes | No |
| Taxed on | Interest each year, at slab rate | Gains at redemption, 12.5% above ₹1.25 lakh after 12 months |
| Missing an instalment | May attract a small penalty | No penalty — simply no units bought that month |
| Suitable horizon | 1 to 3 years | 5 years and beyond |
When to Choose Which
Choose Recurring Deposit
- Saving for a goal in 1–3 years
- Need guaranteed corpus at maturity
- Risk-averse investor
- Emergency fund build-up
Choose SIP (Equity)
- Investment horizon 5+ years
- Can handle market volatility
- Want inflation-beating returns
- Building retirement or child education corpus
Worked Examples
Same ₹5,000 a month, three different goals.
| Scenario | Recurring Deposit | SIP in Equity Funds |
|---|---|---|
| Holiday in 18 months | Right tool — amount is certain | Wrong tool — may be down when you need it |
| Car down payment in 3 years | Reasonable — certainty matters more than return | Only if you can delay the purchase |
| Child’s education in 12 years | Safe, but likely to trail inflation over 12 years | Long enough for equity risk to be worth taking |
An RD is not a weaker SIP. It is a different instrument that answers a different question — how do I make sure a specific amount exists on a specific date?
How Each Is Taxed
RD interest is taxed exactly like FD interest: added to your income and taxed at your slab rate in the year it accrues, with TDS at 10% under section 194A once interest from that bank crosses ₹50,000 in a year (₹1 lakh for senior citizens). Equity SIP gains are taxed only on redemption — 12.5% under section 112A on gains above ₹1.25 lakh a year for units held 12 months or more, and 20% under section 111A for units held less. Because each SIP instalment carries its own 12-month clock, redeeming a young SIP in full leaves the most recent instalments taxed at the higher short-term rate.
These rules apply to both FY 2025–26 and FY 2026–27 — Budget 2026 made no change to capital gains rates or holding periods.
Advantages and Limitations
Recurring Deposit
Works for you when
- The goal has a fixed date and a fixed amount
- You want zero uncertainty
- The horizon is under three years
Watch out for
- Interest taxed annually at slab rate
- A fixed rate may not keep pace with prices
- Missing instalments can attract a penalty
SIP in Equity Funds
Works for you when
- The horizon is five years or more
- You want a chance at inflation-beating growth
- You want the flexibility to pause without penalty
Watch out for
- The maturity value is unknown until you redeem
- A fall near your goal date can force a bad decision
- Needs the discipline not to stop during a crash
How to Decide
One question usually settles it.
- Is there a fixed date and a fixed amount? If yes, RD — certainty is the requirement.
- Is the horizon under three years? RD. Equity has too little time to recover a fall.
- Over seven years? SIP, unless you genuinely cannot tolerate seeing the value drop.
- Between three and seven? Consider splitting, or a hybrid or debt fund rather than forcing a choice.
- Are you in the 30% bracket? Annual taxation of RD interest costs more than the headline rate suggests.
The two are complements, not competitors: RD for what must exist, SIP for what should grow.
Frequently Asked Questions
Sources and Method
Figures on this page are computed by the calculator above from the inputs you enter. Worked examples assume the stated return is earned evenly and ignore exit load, expense ratio and inflation, so treat them as illustrations of the mechanism rather than forecasts.
- Capital gains treatment — Income Tax Act, sections 111A and 112A, as amended by the Finance Act 2024 and unchanged by Budget 2026.
- Rupee cost averaging — AMFI investor education.
- Mutual fund product rules — SEBI (Mutual Funds) Regulations.
Last reviewed 17 August 2026. This page explains how two investment methods behave. It is general information, not investment advice, and mutual fund investments carry market risk.