{"id":8512,"date":"2020-11-13T19:42:49","date_gmt":"2020-11-13T14:12:49","guid":{"rendered":"https:\/\/www.fintoo.in\/blog\/?p=8512"},"modified":"2022-03-14T15:24:58","modified_gmt":"2022-03-14T09:54:58","slug":"postal-recurring-deposits-vs-mutual-fund-sips","status":"publish","type":"post","link":"https:\/\/blog.fintoo.in\/blog\/postal-recurring-deposits-vs-mutual-fund-sips\/","title":{"rendered":"Postal Recurring Deposits Vs. Mutual fund SIPs"},"content":{"rendered":"\n

Investment is a vast topic, there are many things to consider before investing anywhere. People still prefer going the traditional way, of investing in fixed deposits and recurring deposits. For them, it is the best and safest option to invest in. What they don\u2019t consider is the tax rate. In fact, if you go to see the returns are much less after considering the tax.<\/p>\n\n\n\n

Recurring deposits are like fixed deposits, but you have to invest a certain amount regularly. It\u2019s like regular savings for an individual. For example, a person is investing Rs. 1000\/- monthly in a recurring deposit. The minimum period of recurring deposits is 6 months, and a maximum is 10 years. This gives a person the opportunity to save regularly and makes it a habit. An individual can give instructions to the bank, to transfer a certain sum of money every month into the Recurring Deposit account (RD).<\/p>\n\n\n\n

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Related Articl<\/strong>e : Equity Linked Saving Scheme For Saving Tax<\/a><\/p>\n\n\n\n

In RDs if the installment is delayed or not paid, then the interest will be reduced as a penalty and this, in turn, will reduce the maturity value. The rate of penalty will be decided initially. You can avail loans and keep your RDs as collateral but only up to 80% or 90%. The rate of return of an RD is same to that of a fixed deposit.<\/p>\n\n\n\n

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Taxation of Recurring Deposits<\/strong><\/p>\n\n\n\n

Now let us look at the taxation part, Tax deducted at source is applicable in the case of RDs. Tax is deducted from the interest earned on the deposit. TDS at the rate of 10% is deducted by the bank. Income tax is to be paid as per the tax slab of the RD holder, on the RD. Those investors who do not have a taxable income, have to fill and submit a form 15G to avoid TDS on their RDs and for senior citizens is 15H.<\/p>\n\n\n\n

Mutual Funds<\/strong><\/p>\n\n\n\n

Now lets talk about mutual funds<\/a>, they are a collection funds from investors which are invested in different avenues in the market. Mutual funds are more riskier than RDs. Mutual funds are vast, there are so many schemes under Mutual Funds (MF). You have equity and debt funds, under this there are various schemes. Unlike RDs there\u2019s no penalty if you discontinue your SIPs. For example: If a person has a monthly SIP of Rs. 1000\/-, and after few years he stops his SIP, he will get returns on the existing amount in his fund. They will be no penalty for discontinuation of SIP.<\/p>\n\n\n\n

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Debt Funds<\/span><\/p>\n\n\n\n

We shall now take debt funds. Debt funds are mutual funds which are invested in fixed income securities, like bonds, treasury bills, Govt. securities, etc. They are less riskier as compared to equity funds. They are mostly used to fund short term goals. An added advantage is that there\u2019s liquidity. Its returns are higher as compared to RDs. Debt funds are also invested in short, medium and long term bonds. These funds are meant for those investors who do not want to take a high risk. Debt funds<\/a> are steady in nature compared to equity.<\/p>\n\n\n\n

Equity Funds<\/span><\/p>\n\n\n\n

Equity funds are mutual funds invested in the equity market. These funds involve a lot of risks. There are many schemes under these funds as well. They are mostly used to fund long term goals. These equity funds are meant for those investors who are willing to take the risk and understand the market volatility.<\/p>\n\n\n\n

We shall now see how are debt funds and equity funds taxed:<\/strong><\/p>\n\n\n\n