The Systematic Deposit Plan (SDP) and the Systematic Investment Plan (SIP) both are monthly investing tools. The main difference between these two tools is that SIP is dependent on the financial market to provide returns whereas SDP is not. SDP is a Fixed Deposit (FD) product from Bajaj Finance whereas through SIP you invest in mutual funds. You may get the answer that investors with SDP can earn returns even in a market crash while investors with SIP may not be. For more clarity about the concept, let us insight further how SDP is beneficial than SIP.
Systematic Deposit Plan vs Systematic Investment Plan
1. Premature Withdrawal
Both SIP and SDP allows investors premature withdrawal of their deposits. But you cannot withdraw deposits from SIP before the completion of 6 months. Whereas SDP depositors can withdraw funds just after 3 months of deposit.
2. Loan Facility
In case, depositors do not want to withdraw funds prematurely, they can apply for a loan against their deposits. You can avail loan against both types of deposits but there is the condition of a minimum and maximum cap on the loan value.
Fund houses restrict loan amount as per the type of funds you have invested in. For you can get a loan up to 50% of the amount invested in Exchange Traded Funds or hybrid funds whereas if it is a debt fund, you can avail a loan as low as 15%.
With SDP, you can avail a loan against each deposit as per the applicable norms.
3. Interest Rates
With SDP, an investor is sure about returns on his investment as it is a fixed deposit product and not linked to market forces to provide interest. SDP provides returns at a fixed interest rate just like a fixed deposit. On the other hand, there is no guarantee of returns with SIP as these funds are associated with the stock market completely which is highly volatile. SIP is a risky investment tool. You can calculate estimated returns using the FD interest calculator and the SIP Calculator.
1. Safety and Credibility
Bajaj Finance deposits are entitled to the highest safety ratings by national and international credit rating agencies. Just like other FDs of Bajaj Finance, SDP is also accredited with ICRA’s MAAA (stable) ratings and CRISIL’s FAAA/Stable rating. Such high ratings attract investors to SDP more.
2. Investment Planning
It may be hard to choose the mutual funds and asset allocation accordingly to get regular monthly income from SIP to fulfill your financial needs. For instance, to earn Rs.5,000 monthly, you need to allocate funds as 70 % in debt funds and 30 % in equity. And you may have to invest a minimum of Rs. 8 lakhs. On the other hand, SDP is simple to invest. You just need to determine your financial objective and make a deposit accordingly.
Features of SDP
Let’s have a look at various features of SDP.
1. Minimum deposit amount
You can start investing in SDP with as low as Rs. 5,000 monthly. This feature is immensely beneficial for newly employed individuals with limited earnings.
You can invest in the SDP scheme for 12 to 60 months that makes it a flexible investment.
3. Number of deposits
You have options to make deposits in a Systematic Deposit Plan. You can opt from 6 – 48 monthly deposits. The same tenor, that you have chosen, will be applied to all deposits.
4. Maturity Options
With SDP, you will get two options for maturity.
- Monthly Maturity Scheme where your deposits entail different maturity dates. You can withdraw your funds separately.
- Single Maturity Scheme where maturity proceeds will take place on a single day.
So, the SDP scheme is better than SIP to choose for your investments and flexible enough to meet financial goals of different types of investors.