Post Office RD vs SIP: Which Offers Higher Returns On A ₹5,000 Monthly Investment?

For individuals interested in investing small savings, both SIP (Systematic Investment Plan) and Post Office RD (Recurring Deposit) are excellent options. Each requires a fixed monthly deposit. Those who prefer guaranteed returns might find Post Office RD more suitable. Conversely, those willing to take on more risk for potentially higher profits may prefer SIPs. Experts suggest that long-term investments in SIPs can yield substantial returns. Here’s a detailed comparison of investing ₹5,000 in either SIP or RD over five years.

Investing ₹5,000 in RD

Recurring Deposits are available in both banks and post offices. Banks offer RD terms from 1 to 10 years, whereas Post Office RDs are fixed at five years. If you invest ₹5,000 monthly in a Post Office RD for five years at an interest rate of 6.7%, you will invest a total of ₹3,00,000. The interest earned over this period would be ₹56,830. Thus, after five years, you will receive ₹3,56,830.

Potential Returns from SIP

While SIP investments do not guarantee returns, experts estimate an average return of 12% due to the power of compounding. If you start a SIP of ₹5,000 for five years, investing a total of ₹3,00,000, you could earn ₹1,12,432 in interest at a 12% return rate. This would result in a total of ₹4,12,432 after five years. This is nearly double the amount compared to RD. Moreover, if the returns exceed 12%, the final amount could be more than double.

In summary, while Post Office RD offers stability and guaranteed returns, SIPs provide the potential for significantly higher returns, albeit with increased risk.