RD Vs Mutual Funds: What Do Experts Recommend?

Investing for a safe and better future, especially as a retirement plan, is important to keep your financial goals on track. With various competing options in the free market, it has become somewhat difficult to come to a firm decision regarding which investment options to opt for. Two of the primary modes of investment with relatively lower risk factors are Recurring Deposits (RD) and Mutual Funds. According to experts, both RD and Mutual Funds, due to their having high flexibility and low-risk assessment, make investors and potential investors attracted to these two investment options.

Investment should always be based on your compatibility with it.

However, if one has to make a choice between the two it becomes important to learn how the experts look at the basics of the two of them. Based on the proper understanding of these two modes of investments, an investor can easily pick one out according to his or her compatibility. 

What Is A Recurring Deposit Account?

A Recurring Deposit (RD) account is an investment account where the investor can regularly deposit money and the same will yield interest to the account holder. Due to its flexible nature, an RD account is different from a Fixed Deposit (FD) account in the sense that in the former one can keep adding to the principal on a regular basis be it monthly or quarterly. This makes the RD account both saving as well as an investing account. The tenure of RD generally ranges from 6 months to 10 years with a minimum deposit being as low as Rs. 500. 

In order to calculate the returns on your RD use RD calculator. An RD calculator is a perfect online tool to enumerate the returns you will be having at the end of the maturity period of your investment. Using an RD calculator is quite simple: you will just have to add information like the tenure of the investment, monthly deposits, and the interest rate. 

Merits of Recurring Deposit

Some of the advantages of Recurring Deposit are as follows:

 

  • Liquidity: Recurring Deposit allows the investor the option of withdrawing the amount as and when necessary. One withdrawal is mandated by the RD regulation provided a year has been completed since the date of investment. 
  • Negligible Risk: As investing in an RD account implies a fixed rate of interest, which means fixed returns. Hence, it is considered a safe option for investment. Due to the fixed interest rate, one is also able to foresee what the maturity sum would look like with the help of an RD calculator. 
  • High Returns: Compared to the savings account, an RD account offers higher returns due to its higher rate of interest. The interest rate in Recurring Deposit varies anywhere between 5% to 8. 
  • Flexible Investment: An RD account allows the option of minimum investment. This implies that a very small and nominal amount is fixed by the agency which allows the investor to deposit as low as Rs. 500 in their RD account. 
  • Planned Investment: Through an RD account, the investor can plan his financial goals accordingly with the investment not being subjected to any risk along with a fixed rate of interest. This helps an investor to ascertain how much should one invest for an expected return. For this, he or she can us an RD calculator available online.

What Are Mutual Funds?

Mutual funds are a common pool of investment where investors put in their money for specific purposes like the investment in stocks, bonds, etc. Mutual funds are managed by expert fund managers whose sole task is to make the best of these investments for the benefit of the investors. Some of the common categories of mutual funds are : 

  • Equity Funds: meant for investment in equities such as stocks.
  • Debt Funds: meant for investment in fixed income tool
  • Money Market Funds: meant for investment in short-term money income tools.
  • Hybrid Funds: funds with a mix of equity and debt funds.

Mutual Funds are of various types and thus offer diverse ways of investment.  

Merits of Mutual Investments

There are many benefits of investing in Mutual Funds. Some of them are given below:

 

  • Small-Capital: As mutual funds work through the medium of pooling money from various investors, one can have a diversified portfolio in stocks with relatively smaller capital. 
  • Diversification: Investing in just one security may come off risky if it performs poorly. Therefore, mutual funds provide the benefit of diversifying investment options. 
  • Smart Management: As Mutual Funds are managed by expert money managers, there are high chances they are effectively managed without the need for investors to directly involve in the market transactions. 
  • Bulk Benefit: Upon the purchase of larger units of Mutual Funds, the processing fee and other such charges are reduced in comparison to the buying of a single unit. 
  • Safety: As fund houses come under the guideline of financial statutory bodies like SEBI and AMFI, one can check the performance record of the fund house prior to investment. Based on the credentials of the fund houses, one can opt accordingly to ensure a safer place to invest in. 

Which One To Opt For- Recurring Deposit or Mutual Funds?

Upon having learned the basics about both the Recurring Deposit and Mutual Funds, it may become easy for many potential investors to choose between who. However, for a further elaborate analysis let us see the comparison between the modes of investment to make a better-researched choice.

Important Features Recurring Deposit Mutual Funds
Frequency of Investment Fixed frequency, usually at the monthly level Investment can be done on a weekly, monthly, or quarterly basis.
Returns Fixed interest rates, therefore, fixed returns. The returns can be ascertained using an RD calculator.  Returns in Mutual Funds are variable and depend on the scheme the investor has opted for. The returns can be forecasted using a mutual funds calculator.
Maturity Date Six months to 10 years. The period may vary in different institutions. The maturity date for investment is varying. It can be both for short and long term. 
Risk Risk is negligible as the capital invested is not subjected to any form of loss.  Not as safe as RD, as the returns depend on the performance of the funds in the market.  
Liquidity By paying the requisite charges, the investor can withdraw the deposit High liquidity. Funds can be withdrawn anytime provided a fee is paid.  
Financial Goals Optimum for short-term goals Most suitable for long term goals.
Investment Scheme No schemes per se.  Offer varying schemes

Based on these comparisons, an investor can form a general idea as to what will be the ideal investment for him or her. Moreover, with the help of Mutual Funds and RD calculator, the maturity amount can also be approximated after entering the requisite details. As per experts, one thing which clearly emerges from the two comparisons is that RD is suitable for meeting short term goals whereas Mutual Funds can do the trick for the long term goals. However, other factors should also be paid heed to before you make a final choice. Make sure that you are using Mutual Funds and RD calculators in order to plan the investments efficiently.

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