Mutual Funds or RD: Where should you invest for strong returns? Here's the answer..

The urge to save your earnings isn't new. No matter how much you earn, people always consider investing. Because investing is the only way to get through tough times. When you need money the most, your savings are a huge help. As for how to invest, there are many ways available in the market. Two of them are RD and mutual fund investments. Let's explore which investment plan is right for you.

RD and SIP
RD is an investment in which you deposit a fixed amount every month in a bank or post office. The interest rate is fixed, so there's no risk. After the stipulated period, you receive both your deposit and the interest earned.

Difference between RD and SIP
Investors should be cautious when choosing between a recurring deposit at a bank or post office and a systematic investment plan (SIP) in mutual funds, as there are significant differences between the two. Investments in RDs are made through banks or post offices, offering fixed and guaranteed returns (6% to 7.5% annually). The risk is very low, but the lock-in period ranges from 6 months to 10 years, and premature withdrawals are subject to penalties. Furthermore, the interest is taxable, making it suitable for those seeking safe and assured returns.

SIPs, meanwhile, are conducted through mutual funds, where returns are market-dependent. Returns average 10% to 15% over the long term. Risk is moderate to high. There's no fixed lock-in period, but flexible options are available. Partial or full withdrawals are easy, and LTCG tax is applicable after one year on equity SIPs. This may be a good fit for those seeking higher long-term returns. Overall, both schemes have their advantages and disadvantages.

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