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How the Systematic Deposit Plan (SDP) Differs from the Systematic Investment Plan (SIP)

michealanderson February 11, 2020

SIP or Systematic Investment Plan

There are many acronyms and jargons in the financial planning and investing arena. The most common one made popular by financial planners is SIP or Systematic Investment Plan. SIP is the monthly investment into a collective investment vehicle such as a mutual fund. The purpose of an SIP is to create a disciplined approach towards investing. It is also a tool to ensure that you do not move away from one investment to another and your bank auto-debits ensure you stick with a plan for a while. Sticking to a plan with discipline yields results and this is the crux of an SIP.

SDP or Systematic Deposit Plan

A new tool has been introduced as an innovative add-on on the regular company fixed deposit by leading NBFC, Bajaj Finance. It is the provider of one of the high-yielding fixed deposit plans in the country with an interest rate up to 8.35%.

The SDP is a new savings tool designed to allow investors across all income groups to reap the benefits of high-yielding company FDs. Under an SDP, you can create a number of small, monthly deposits (from 6 to 48) during a tenor ranging from 12 to 60 months. Each monthly deposit is treated as an FD in itself and the minimum deposit amount is Rs. 5000 per month. You can calculate your returns from an SDP using an SDP Calculator.

So, what are the differences between SIP and SDP and how you should use them? Let us look at this in detail-

1. Purpose – A SIP is opened to deposit monthly payments of a fixed amount into a mutual fund. The SDP is a monthly payment plan for a fixed deposit.

2. Working – A SIP works on an auto-debit mode with a permission given to your bank to auto-debit your account and credit the amount to your mutual fund folio every month at a given date.

An SDP works on a NACH mandate given to ensure your chosen number of payments are debited and deposited into the fixed deposited on the chosen date of 3rd, 7th or 12th of each month.

3. Investment – Once the auto-debit in an SIP takes place, it is invested to purchase the units of the mutual fund at the cut-off price specified for the fund.

Once a debit for an SDP takes place, the payment is deposited at the interest rate (as per Bajaj Finance FD interest rates) prevailing on the transaction date.

4.The number of deductions – An SIP auto-debit takes place each month till the end of the tenor. Thus, the number of months is equal to the number of SIPs.

In an SDP, you can decide the number of monthly deposits ranging from 6 to 48. This is irrespective of the tenor (ranging from 12-60 months). Thus, the number of months of the tenor is not equal to the number of SDPs.

5.Maturity – All the deposits under an SIP mature all together at the end of the tenor. Whereas the monthly deposits in an SDPmature one after the other just like they were deposited. Thus, each deposit in an SDP is like a new FD and an SDP has an in-built laddering feature.

6. Guaranteed returns – The returns of an SIP cannot be predicted beforehand as it is a systematic investment plan of a mutual fund which is market-linked and has no predictable returns.

An SDP is invested on the interest rate prevailing that day, thus the returns on each deposit are pre-determined. You can utilise the SDP calculator to know the exact returns over a specific tenor.

Thus, SIPs and SDPs can make a world of difference in your financial goals.

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