SIP vs RD Calculator
Put a monthly SIP and a recurring deposit side by side to see which habit grows your money faster.
Year-wise comparison
| Year | SIP value | RD value |
|---|---|---|
| 1 | ₹64,047 | ₹62,210 |
| 2 | ₹1,36,216 | ₹1,28,694 |
| 3 | ₹2,17,538 | ₹1,99,746 |
| 4 | ₹3,09,174 | ₹2,75,679 |
| 5 | ₹4,12,432 | ₹3,56,829 |
SIP vs Recurring Deposit (RD): The Fundamental Dilemma
For salaried individuals and disciplined savers in India, committing a fixed monthly amount toward long-term wealth creation typically leads to a choice between two popular vehicles: a Mutual Fund Systematic Investment Plan (SIP) and a Bank Recurring Deposit (RD). Both instill the same habit of regular monthly investing, but their underlying mechanisms, risk profiles, return potential, and tax treatments could not be more divergent.
This calculator models both investments side by side on identical monthly outlays: running a monthly annuity-due equity growth model for the SIP and the statutory quarterly-compounding banking formula for the RD, highlighting the exact wealth gap and post-tax differential.
Safety vs Growth: Contrasting Risk Profiles
The core trade-off between SIP and RD boils down to capital certainty versus wealth creation:
- Bank Recurring Deposit (Guaranteed Safety): RDs provide absolute capital safety and fixed, contractual interest rates locked on day one. Backed by the RBI and insured up to ₹5,00,000 per bank by DICGC, an RD carries zero market risk.
- Equity Mutual Fund SIP (Inflation-Beating Wealth): SIPs invest in diversified equity markets. Unit values fluctuate with market cycles, but over multi-year horizons (5+ years), equity compounding has historically delivered 12% to 15% annualized returns, easily outpacing consumer inflation.
Comparative Mathematical Formulas
SIP: FV = P × [ ((1+i)ⁿ − 1) ÷ i ] × (1+i) | RD: Compounded Quarterly via RBI Conventions
- P: Monthly instalment deposited in both vehicles (in ₹)
- SIP Formula: Monthly annuity-due compounding at assumed annual rate r (i = r ÷ 1200)
- RD Formula: Standard Indian banking closed-form equation compounding quarterly at contractual rate
- Inflation Impact: Bank RD returns (6.5%–7%) struggle to beat 6% inflation, whereas equity SIPs (12%–14%) deliver robust real wealth expansion
Worked example: ₹10,000/month for 5 Years (SIP @ 12% vs RD @ 7%)
Consider an investor committing ₹10,000 every month for 5 years (60 months), comparing an Equity SIP at an assumed 12% p.a. against a Bank RD at a fixed 7% p.a.:
- Total Capital Invested: 60 × ₹10,000 = ₹6,00,000 in both options
- Bank RD Maturity Value (7% p.a.): ₹7,15,928 (Interest Earned: ₹1,15,928)
- Mutual Fund SIP Maturity Value (12% p.a.): ₹8,24,864 (Capital Growth: ₹2,24,864)
- Gross Wealth Gap: The SIP finishes ₹1,08,936 ahead (+15.2% more wealth)
- Post-Tax Reality: For an investor in the 30% tax slab, RD interest is taxed at 30% + cess, reducing net profit to ~₹79,750. In contrast, the equity SIP qualifies for 12.5% LTCG with a ₹1.25 lakh annual exemption, delivering vastly superior net in-hand returns.
SIP vs RD Wealth Comparison Over 5, 10, and 15 Years (₹10,000/mo)
| Investment Horizon | Total Capital Invested | Bank RD Value (at 7% p.a.) | Equity SIP Value (at 12% p.a.) | SIP Wealth Advantage |
|---|---|---|---|---|
| 3 Years (36 mo) | ₹3,60,000 | ₹4,01,150 | ₹4,30,769 | ₹29,619 (+7.4%) |
| 5 Years (60 mo) | ₹6,00,000 | ₹7,15,928 | ₹8,24,864 | ₹1,08,936 (+15.2%) |
| 7 Years (84 mo) | ₹8,40,000 | ₹10,87,320 | ₹13,88,650 | ₹3,01,330 (+27.7%) |
| 10 Years (120 mo) | ₹12,00,000 | ₹17,40,945 | ₹23,23,391 | ₹5,82,446 (+33.5%) |
| 15 Years (180 mo) | ₹18,00,000 | ₹31,88,100 | ₹50,45,760 | ₹18,57,660 (+58.3%) |
Taxation Disparity: The Silent Return Killer
The taxation divergence between SIPs and RDs decisively favors mutual funds:
- Bank RD Taxation: RD interest is classified as "Income from Other Sources" and taxed every year at your marginal personal income tax slab rate (up to 30% + cess). Banks also deduct 10% TDS under Section 194A if total interest exceeds ₹40,000 (₹50,000 for seniors).
- Equity SIP Taxation (Budget 2024): No tax is due until redemption. Units held beyond 12 months qualify as Long-Term Capital Gains (LTCG) taxed at a concessional 12.5% under Section 112A, with the first ₹1,25,000 in gains completely tax-free every financial year.
Decision Framework: How to Allocate Your Savings
Allocate based on investment time horizon and financial goals:
- Choose Bank RD: For short-term financial goals occurring within 1 to 3 years (e.g., annual insurance premiums, vacation funds, emergency buffers) where capital preservation is paramount.
- Choose Equity SIP: For medium-to-long-term wealth goals occurring after 5+ years (e.g., children's college education, house down payment, retirement corpus) where compounding must outpace inflation.
Frequently Asked Questions on SIP vs RD
Key insights into return differences, capital safety, tax rules, and optimal portfolio allocation.
Historically, an Equity SIP substantially outperforms a Bank RD over horizons of 5 years or longer. In our 5-year worked example, a ₹10,000 monthly SIP generated over ₹1,08,000 more wealth than an RD, with the gap expanding to over ₹18.5 lakh across a 15-year horizon.
Yes. Bank RDs carry fixed, guaranteed interest rates backed by commercial banks and insured up to ₹5,00,000 per depositor per bank by the Deposit Insurance and Credit Guarantee Corporation (DICGC). Equity SIP returns are market-linked and carry short-term volatility.
RD interest is 100% taxable at your slab rate every year (up to 30% + cess). Equity SIP gains are taxed only upon redemption under preferential capital gains rates: 12.5% LTCG on gains exceeding ₹1.25 lakh per financial year for units held over 12 months.
Yes. Banks deduct 10% TDS under Section 194A if total interest earned across all fixed and recurring deposits in that bank exceeds ₹40,000 per financial year (₹50,000 for senior citizens). No TDS is deducted on mutual fund equity redemptions for resident Indians.
In the short term (under 3 years), equity market corrections can cause portfolio values to drop below the invested amount. However, over horizons of 7 to 10 years, diversified Indian equity mutual funds have historically virtually never delivered negative returns.
With CPI inflation averaging 6%, a 7% RD leaves only 1% real return before tax. For an investor in the 30% slab, post-tax return is ~4.9%, resulting in a negative real return of −1.1% per year. An equity SIP earning 12% delivers a robust real post-tax return of ~5%–6% above inflation.
In a SIP, you can pause, skip, or cancel monthly debits online anytime with zero penalty. In a bank RD, missing instalments can attract late penalty charges, and premature account closure typically involves a 0.5%–1.0% interest rate penalty.
An RD (or liquid mutual fund) is superior for emergency funds because capital is guaranteed and immune to market corrections. Equity SIPs should never be used for money you might need on short notice.
Yes. Most Indian commercial banks offer senior citizens (aged 60+) an additional interest premium of 0.50% per annum on recurring deposits. Furthermore, Section 80TTB provides senior citizens a tax deduction of up to ₹50,000 on total interest income under the Old Regime.
Yes, and doing so represents balanced financial planning: deploy short-term savings (1–2 years) into an RD for liquidity and capital preservation, while channeling long-term wealth funds (5+ years) into an equity SIP to build a substantial retirement corpus.