Which Is Better, RD or SIP for a ₹20 Lakh Target in 5 Years?

A Simple & Practical Guide for Smart Investors

Saving money is easy. But choosing the right way to save or invest is what makes a big difference in long-term wealth. Two of the most popular methods Indians use are:

• RD (Recurring Deposit) – Safe, guaranteed returns
• SIP (Systematic Investment Plan) – Market-linked, growth-oriented

If your target is ₹20 lakh in 5 years, which one is the better option?

Let’s compare RD vs SIP in plain English with actual numbers.

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💡 1. Understanding RD and SIP in Simple Terms

🟣 What is RD (Recurring Deposit)?

• Fixed monthly deposit
• Fixed interest rate
• Guaranteed returns
• No market risk
• Ideal for risk-averse savers

Typical interest rate: 6%–7.5% per year
Suitable for: Short-term stable saving

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🟢 What is SIP (Systematic Investment Plan)?

• Monthly investment in mutual funds
• Market-linked returns
• Historically highest long-term wealth creator
• Suitable for long-term goals

Typical average return in equity SIP: 10%–14% per year
Suitable for: Wealth building, long-term goals

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🧮 2. How Much Should You Invest Monthly to Reach ₹20 Lakh in 5 Years?

Let’s calculate both options.

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📌 A. Monthly RD Required for ₹20,00,000 in 5 Years

Assuming bank RD interest rate = 7% annually

Formula Result:

You must invest approx ₹28,600 per month in RD
to reach ₹20 lakh in 5 years.

Total invested: ₹17.16 lakh
Total interest: ~₹2.84 lakh
Final amount: ₹20 lakh

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📌 B. Monthly SIP Required for ₹20,00,000 in 5 Years

Assuming SIP returns = 12% annually (average for equity funds)

Formula Result:

You must invest approx ₹22,000 per month in SIP
to reach ₹20 lakh in 5 years.

Total invested: ₹13.20 lakh
Wealth gained: ~₹6.80 lakh
Final amount: ₹20 lakh

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🟨 3. Clear Comparison Table (RD vs SIP for ₹20 Lakhs Goal)

Feature	RD (7%)	SIP (12%)
Monthly Investment Needed	₹28,600	₹22,000
Total Money You Put In	₹17.16 lakh	₹13.20 lakh
Returns Earned	₹2.84 lakh	₹6.80 lakh
Risk Level	Zero risk	Market risk
Flexibility	Low	High
Wealth Growth	Slow	Fast
Ideal For	Safety	Long-term growth

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🟦 4. Which One Is Better? RD or SIP?

✔ If your top priority is Safety + Guaranteed Returns →

RD is better

• No risk
• Predictable maturity amount
• Bank-backed security

But you must invest ₹28,600 per month, which is much higher.

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✔ If your priority is Wealth Growth + Lower Monthly Amount →

SIP is clearly better

• You invest ₹6,600 less each month than RD
• You earn ₹6.8 lakh in returns (more than double of RD)
• You achieve your target comfortably
• Historically best for 5+ year goals

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🟩 5. Realistic Scenario for Most Investors

For a 5-year target of ₹20 lakh:

👉 SIP is the more practical and cost-efficient choice.

Why?

• Lower monthly commitment
• Higher long-term growth potential
• Beats inflation
• Offers flexibility (increase/decrease SIP)

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🧠 6. Best SIP Strategy to Achieve This Goal

Here’s a smart and safe SIP allocation for a 5-year target:

Recommended Portfolio Allocation

• 60% Equity Flexi-Cap Fund
• 40% Large-Cap Fund

Suggested Top Fund Categories:

• Flexi Cap – balanced returns, stable
• Large Cap – safer, for 5-year horizon

Optional:

Add a small 10% SIP in Short-Term Debt Fund for safety.

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🟧 7. What If Markets Fall? Will SIP Fail?

No.
In fact, SIP performs better during volatility because:

• You buy more units when market is low
• You buy fewer units when market is high
• Over 5 years, rupee-cost averaging works beautifully

If markets crash in the final year:
👉 Simply extend your SIP by 6–12 months and you will still hit your target.

RD doesn’t give this flexibility.

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🟦 8. Final Verdict: Which Is Better for ₹20 Lakh in 5 Years?

🥇 Winner: SIP (Systematic Investment Plan)

Why?

• Lower monthly requirement
• High long-term growth
• Beats inflation
• Flexible and easy
• Tax-efficient (if investing in equity mutual funds)

RD is good — but not for wealth-building targets like ₹20 lakhs in a short timeline.

If you want safety → Go for RD
If you want wealth → Choose SIP

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