SIP vs FD vs RD: How They Differ and How to Estimate Returns
SIP, FD and RD are three of the most common ways to save in India, and they are often mentioned together. They work differently, carry different kinds of risk and suit different goals. This guide explains each in plain language, shows how their maturity values are estimated and lists what an estimate does not tell you. It is for understanding and planning, not a recommendation to choose any product.
Fixed deposit (FD)
You deposit a lump sum with a bank for a fixed period at an agreed interest rate. Interest may be paid out periodically or added to the deposit (compounded). Example: ₹1,00,000 at 7% a year for 5 years, compounded quarterly, grows to about ₹1,41,477.82, an interest of ₹41,477.82. The return is fixed in advance, which is why FDs are chosen for certainty. Check the bank’s terms for premature withdrawal and tax on interest.
Recurring deposit (RD)
You deposit a fixed amount every month for a fixed tenure at an agreed rate. Example: ₹5,000 a month for 24 months at 7% a year gives total deposits of ₹1,20,000 and an estimated maturity value of about ₹1,29,154.19. This estimate assumes monthly compounding. Many banks compound RD interest quarterly, so the bank’s figure can differ a little. An RD suits people who want to save regularly from their income with a fixed return.
Systematic investment plan (SIP)
A SIP invests a fixed amount every month in a market-linked product, most commonly a mutual fund. The return is not fixed. If you assume 12% a year, ₹5,000 a month for 10 years gives an invested amount of ₹6,00,000 and an illustrative maturity value of about ₹11,61,695.38. The real result could be lower or higher, and it can be negative in a bad period. The figure shows how regular investing and time can compound under an assumed rate, not what you will receive.
Side-by-side comparison
| FD | RD | SIP | |
|---|---|---|---|
| Money put in | One lump sum | Fixed monthly deposit | Fixed monthly investment |
| Return | Fixed by the bank | Fixed by the bank | Market-linked, not guaranteed |
| Risk | Low credit and rate risk | Low credit and rate risk | Value can fall as well as rise |
| Flexibility | Premature exit may reduce interest | Missed deposits may attract a penalty | Can usually change or stop, with fund-specific rules |
| Good for | Parking a known sum for a set time | Building a fixed-return habit | Long-term goals that can handle ups and downs |
How the estimates are calculated
An FD uses compound interest: A = P × (1 + r ÷ n)n × t. RD and SIP estimates use the future value of equal monthly payments: P × [((1 + i)n − 1) ÷ i] × (1 + i), where i is the monthly rate and n the number of months. The FD, RD and SIP calculators on PraxTools use these formulas, and their starting values match the examples above.
What an estimate leaves out
- Taxes. Interest and gains can be taxable, and the rules can change.
- Charges. Mutual funds have expense ratios and sometimes exit loads, which reduce returns.
- Inflation. A future amount buys less than the same amount today.
- Rate changes. New FDs and RDs get new rates, and SIP returns vary every month.
- Your timeline. Money needed soon should not depend on assumptions that can fall short.
Frequently asked questions
Which is better, SIP or FD?
They serve different purposes. An FD gives a fixed, known return for a set period. A SIP aims for higher long-term growth but with no guarantee and a risk of loss. The right mix depends on your goals, time horizon and comfort with risk, and a qualified adviser can help.
What return should I assume for a SIP?
There is no guaranteed rate. Use several assumptions, from conservative to optimistic, and see how the result changes.
Is RD better than saving in a normal account?
RD usually offers a higher fixed rate than a savings account and enforces a regular habit, but terms vary by bank.
Do these calculators include tax?
No. Taxes, fees and inflation are not included in the estimates.
Try the tools mentioned
Please note: This article is general information for learning and planning. Rates, rules and taxes can change, and examples use illustrative numbers. It is not tax, legal or investment advice, so please check official sources or speak to a qualified professional before you decide.
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