| RD | SIP | Step-Up SIP | |
|---|---|---|---|
| You invest | - | - | - |
| Value | - | - | - |
| Gain | - | - | - |
| Risk | Very low | Market | Market |
Tip
Use this free Compare Investments tool to see how the same monthly amount grows in a bank RD, a mutual fund SIP and a Step-Up SIP. Enter your monthly amount, time period and expected returns to compare them side by side, along with the risk of each.
RD, SIP and Step-Up SIP in one line each
- RD (recurring deposit): a fixed amount every month in a bank, with a fixed, guaranteed interest rate.
- SIP (systematic investment plan): a fixed amount every month in a mutual fund. Returns depend on the market.
- Step-Up SIP: a SIP where you increase the monthly amount every year, usually in line with your salary.
How the comparison is calculated
- RD uses quarterly compounding on each instalment, the method most Indian banks follow. See our RD Calculator.
- SIP uses monthly compounding at your expected average return. See our SIP Calculator.
- Step-Up SIP increases the SIP by your chosen percentage every year, then compounds monthly. See our Step-Up SIP Calculator.
Bank RDs usually run for up to 10 years. For longer periods, the RD result assumes you keep renewing at the same rate.
Example: ₹5,000 a month
RD at 7%, SIP at an expected 12%, and Step-Up SIP at 12% with a 10% yearly increase:
| Period | RD | SIP | Step-Up SIP |
|---|---|---|---|
| 5 years | ₹3.60 L | ₹4.12 L | ₹4.92 L |
| 10 years | ₹8.69 L | ₹11.62 L | ₹16.87 L |
| 20 years | ₹26.07 L | ₹49.96 L | ₹99.44 L |
Over 20 years, the SIP grows to almost double the RD, and the Step-Up SIP to almost four times. But note: in the Step-Up SIP you also invest more money (about ₹34 lakh instead of ₹12 lakh), and SIP returns are not guaranteed.
Return is only half the story: risk matters
| RD | SIP / Step-Up SIP | |
|---|---|---|
| Returns | Fixed, known in advance | Market-linked, can go up or down |
| Can you lose money? | No (deposit insurance up to ₹5 lakh per bank) | Yes, especially over short periods |
| Flexibility | Fixed amount and tenure | Can stop, pause or change anytime |
| Tax | Interest taxed every year at your slab | Taxed only when you sell, as capital gains |
| Best for | Goals within 1–3 years | Goals 7+ years away |
Which should you choose?
A banker’s simple rule: choose by when you need the money, not by the highest number.
- Within 3 years (a vehicle, a holiday, school fees): RD or FD. You cannot afford a market fall just before you need the money.
- 3–7 years (a house down payment, a wedding): a mix. Many people use hybrid funds along with an RD.
- 7+ years (retirement, children’s higher education): SIP, ideally a Step-Up SIP, has time to ride out market ups and downs.
And always keep an emergency fund of 3–6 months’ expenses in a savings account or FD before investing in the market.
Banker’s tips
- Compare after tax. RD interest is taxed every year at your slab rate, which reduces its real return, especially in the higher tax brackets.
- Think about inflation. If your RD earns 7% and inflation is 6%, your real gain is small. For long-term goals, you need growth above inflation.
- You don’t have to pick only one. A monthly RD for short goals and a SIP for long goals is a sensible family plan.
- Be realistic with SIP returns. Use 10–12% for long-term equity planning, not the best year’s return.
Frequently asked questions
Is SIP better than RD?
For long periods, SIPs in equity funds have the potential to grow more, but they carry market risk. RD gives a guaranteed return. The better choice depends on when you need the money and how much risk you can take.
Why does Step-Up SIP show such a big value?
Because you invest more every year, and the extra money also compounds. Compare the “You invest” row to see how much more you put in.
Can I lose money in a SIP?
Yes. Mutual fund values go up and down with the market. Over short periods, a SIP can show a loss. Over long periods, the chance of loss has historically been lower, but it is never zero.
Is RD money safe?
Bank RDs are covered by DICGC deposit insurance up to ₹5 lakh per depositor per bank, including your other deposits in that bank.
Related calculators
- FD Calculator – grow a lump sum safely
- Retirement Calculator – how much you need to retire
- Compare Loans – find the cheaper loan offer
Mutual fund investments are subject to market risks. Please read all scheme-related documents carefully before investing. Figures are illustrations, not a promise of returns.