Systematic Investment Plans are emerging as a popular investment option as they are an amalgamation of the security that age-old recurring deposits offer along and the gains from Capital markets.

Figure this. The total number of Systematic Investment Plans (SIPs) in Mutual Funds have grown by a whopping 90 per cent to reach 2.66 crore by the end of financial year 2022 (FY22), according to a recent report, as against just 1.41 crore SIP accounts for the corresponding period of FY21.

What was introduced as an alternative to recurring deposits for Indian investors nearly three decades ago is fast emerging as one of the most popular choice among investors for parking their savings. Despite the volatility of Capital markets, the number of live SIP accounts have also increased from 3 crore at the end of April 2020 to 5 crore in February 2022.

So, what is driving this surge? And, are Systematic Investment Plans emerging as the new-age bank recurring deposits? Much like recurring deposits, SIPs allow you to invest small sums of money at regular intervals, rather than putting in a lump sum amount at once. This allows investors to build a large corpus over time, something that they may not have been able to manage otherwise. You can start a SIP for as little as Rs 1,000 and can make the investment weekly, monthly or annually.

Recurring deposits are similar – they also allow you to start with small amounts and make additions to your investment at regular intervals which are pre-set by you. Both kinds of investments allow you to say ‘Stop’ at any time – offering you the flexibility of allocating the funds towards other expenses that may be more pressing at the time.

But, one of the main differentiators between the two kinds of investments is that SIPs offer benefits of both worlds – enjoy the gains from Capital markets as well as the age-old security of investment that recurring deposits offer. The vast umbrella of SIPs offers a wide array of investment options in varied type of funds and you can choose what suits your requirements after considering factors such as age, risk profile, time for investment and overall investment goals.

While recurring deposits only offer one categorization of risk, you can select your risk levels through a SIP investment, which allows you to put your savings into different kinds of mutual funds – like equity, debt, hybrid, ETFs, liquid funds, among others. This allows you diversity in investment, as well as returns, and is not something that recurring deposits can provide as you are putting all your money into bank deposits in return for a fixed rate of return. Needless to say, SIPs have the potential of higher returns as your money can be parked into assets that are synced with the Capital markets.

With a SIP, you also stand to gain from the power of compounding, thereby earning higher returns. In this mode of investing, the returns that you earn on your holdings gets reinvested back into the same scheme, increasing the overall amount that is invested. So, the more you earn, the larger is the investment amount, thereby offering increased returns. This does not happen in case of a recurring deposit where the interest is paid out separately and not added to the sum of the fixed deposit.

One of the other USPs of an investment in SIPs, the gains from rupee cost averaging, also don’t apply to recurring deposits as in the latter, you get locked in to the prevailing rate of returns on recurring deposits at the time the investment is made.

Finally, every investor wants their money to be safe and recurring deposits are the preferred choice for the risk averse. While a bank recurring deposit is considered to be a very safe mode of investment, the risk level for a SIP may vary according to the kind of mutual fund scheme that is chosen for the SIP. Generally speaking, equity funds are known to be the riskiest and fixed income sits at the lowest end of the risk spectrum.

So, you can weigh the pros and cons of both and choose what suits your overall investment goals better – SIPs or recurring deposits.

Disclaimer: An Investor Education and Awareness Initiative by Mirae Asset Mutual Fund

All Mutual Fund investors have to go through a one-time KYC (Know Your Customer) process. Investors should deal only with Registered Mutual Funds (RMF). For further information on KYC, RMFs and procedure to lodge a complaint in case of any grievance, you may refer the Knowledge Centre section available on the website of Mirae Asset Mutual Fund

Mutual fund investments are subject to market risks, read all scheme related documents carefully.


IE Disclaimer

An investor education initiative by Mirae Asset Mutual Fund.

For information KYC process, Registered Mutual Funds and the procedure to lodge a complaint, refer knowledge centre section available on the website of Mirae Asset Mutal Fund.

Mutual fund investments are subject to market risks, read all scheme related documents carefully.