RD Vs SIP: Which Should You Choose As Youth For Better Return; Understand Math

We all must have received advice to start investing at an early age at least once in our lives. A financial advisor, someone from family, friends or sometimes even a stranger might have advised you to invest. But, very few of them explain precisely the existing investment instruments and risks around them. As a young fellow, we hear about investment options like Mutual Funds, Equity, Recurring Deposits, fixed deposits and others...but the majority of youth are unable to find better options to start investing as per their earning.

In the beginning, it is difficult for youths to start investing with a lump sum amount. But, a certain amount from the salary every month will make the 'initiative' possible. Today, we will talk about two investment instruments one will Recurring Deposits, a risk-free instrument, and an equity-linked mutual fund.

RD Investment

Suppose a youth does not want to take a risk on his investment and starts investing Rs 4000 every month for three years in a recurring deposit scheme. Currently, most banks including post offices offer an interest rate of up to 7 per cent on RDs. Let's assume, the interest rate at 6.8 per cent. Then in Three years, he would deposit RS 144,000 as the principal amount. He will get Rs 16,047 as interest. The combined amount will be Rs 1,60,047.

Amount Invested = 4,000*36 = 144,000
Interest Earned - Rs 16,407
Total Amount - Rs 1,60,047 (Principal + Interest)

SIP Investment

If you have a risk appetite and want to start investing with a small contribution every month then Mutual Fund SIPs can be a good option. As per the data, an investment in a mid-cap mutual fund may give a return between 12 per cent to 30 per cent, sometimes it can be even more than this as well. Let's take the same criteria as we mentioned above and assume the return on investment at 15%. If a youth starts investing Rs 4,000 per month as SIP for three years, then he will invest Rs 1,44000 and will get a return of Rs 38718. Hence, He will have Rs 182718 in total.

Amount Invested = 4,000*36 = 144,000
Interest Earned - Rs 38,718
Total Amount - Rs 1,82,718 (Principal + Interest)

Note: Mutual Fund investments are subject to market risk. please take proper advice before investing.

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