Which investment option is better – FD, RD or MIS?

Even for risk averse investors, there are ample of investment avenues available in the market. There are various investment options which are quite popular and then are those which are not. The most attractive part of the popular ones is the security that they offer. Among various types of investments, a fixed deposit investment is the safest form of investment. Apart from Fixed Deposit (FD), Recurring Deposit (RD) and Monthly Income Scheme (MIS) are the most popular investment options in India. The major reason why people invest in these avenues is that returns are assured, and there are no risks involved.

RD v/s FD v/s MIS

The majority of the banks and Non-Banking Financial Companies (NBFCs) offer these services. Monthly Income Scheme differs from RD and FD. It accumulates higher returns as compared to FD and RD. There are various Monthly Income Schemes available for investors to choose from. Monthly Income Scheme is different from Monthly Income Plans (MIPs), make sure not to get confused. Monthly Income Plans is the product of Mutual Funds, whereas, Monthly Income Scheme is the service provided by financial institutions to avail interest on a monthly basis.

There are many variables that differ in these three options. We can compare them step by step and understand which investment option is better.

Tenure: Under Fixed Deposit, the average tenure ranges between the periods of 1-5 years. The investor can choose the tenure as per his/her comfortability. It is important to know that longer tenure will yield higher returns. However, the best interest rates are offered for an FD of 3 years. Recurring deposits have a longer tenure viz., 10 years. Under recurring deposit, an investor is required to deposit the amount at regular intervals. As for monthly income scheme, the tenure ranges between the periods of 1-10 years.

Investment Limit: There is a max cap set by the majority of the financial institutions when it comes to investments. This limit differs from bank to bank. However, the maximum limit in a fixed deposit scheme is INR 1.5 lakhs. However, the maximum investment limit under recurring deposit is much more as an investment of INR 15 lakhs can be made per month.

Return on Investment: Fixed Deposit offers a higher interest rate than recurring deposits. You can avail a higher interest rate if you opt for fixed deposit from a Non-Banking Financial Company (NBFC). As for Return on Investment (ROI), Monthly Income Schemes offer a lower ROI, since the rate of interest is less than regular fixed deposits.

Interest Income: The interest that you earn on your fixed deposit investment is taxable. Almost every financial institution deducts TDS. Interest earned on recurring deposits is also taxable. However, most banks do not have the TDS facility.

Tax Benefits: Fixed Deposit investments are eligible for tax benefits under Section 80C of IT Act 1961. As far as recurring deposits are concerned the interest amount you earn up to INR 10,000 has tax benefits.

Eligibility: When it comes to eligibility, both these investment options are readily available. However, if you are looking to invest in a tax saving FD, then you must be an individual investor or a Hindu Undivided Family (HUF).

Withdrawal: When it comes to withdrawal, an investor can withdraw only on the completion of tenure. Both fixed deposit and recurring deposit require the investor to pay the penalty if they decide to withdraw prematurely. As of Monthly Income Scheme, it is not a problem as the investors are benefiting from the interest on a monthly basis.

These are several attractive investment options which you can choose from. Their features differ from one another, and so you must select accordingly.


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