A Systematic Deposit Plan or SDP is a quick savings tool, which enables individuals to deposit a small amount every month. It is a feature of Fixed Deposit. On the other hand, a Systematic Investment Plan or SIP is a method of investing in mutual funds monthly.
Both these plans eliminate the need to deposit a lump sum amount initially, which is otherwise required to invest in fixed deposits and mutual funds.
Which is the best option to manage a market crash?
One of the primary differences between Systematic Deposit Plans and Systematic Investment Plans is that the latter is market-dependent, while the former is not.
Hence, investors may not be able to earn returns on investment during a market crash when opting for an SIP. In such situations, saving with an SDP will prove highly beneficial.
Additionally, some of the other features of an SDP that make it a suitable alternative to an SIP are mentioned below –
- Premature withdrawal facility
Similar to an SIP, a Systematic Deposit Plan also allows individuals to withdraw their deposits prematurely.
The only condition here is that the deposit has to be at least 3 months old. In case of SIPs, investors cannot withdraw their funds before 6 months.
- Attractive rate of interest
The rate of interest on Systematic Deposit Plans begin from 7.6%. These rates usually increase with the lock-in period and vice versa.
Senior citizens are liable to receive an additional 0.25% interest over the standard rate. Customers renewing their deposits will be eligible for an additional 0.10% interest.
Individuals can use an SDP calculator to calculate their returns on investment and plan their savings accordingly.
SIPs may offer returns higher than the above mentioned rates since these are market-linked. However, depositing in Systematic Deposit Plans can be more worthwhile considering the fact that the returns are guaranteed, unlike SIPs.
- Loan against deposit
Depositors don’t have to prematurely withdraw their funds from their SDP account during a financial emergency. Instead, they can avail a loan against the deposited amount.
Options for a loan against mutual funds are also available. However, fund houses usually have a minimum cap on the loan amount and the maximum amount is restricted based on the type of funds. For example, the loan amount may be limited to 50% of the sum invested in ETFs, equities, or hybrid funds. It can be as low as 15% in the case of fixed maturity plans and debt funds.
- Rated safe and stable
The Systematic Deposit Plan offered by Bajaj Finance is rated stable by ICRA and CRISIL, thereby ensuring a high return against the invested amount. Depositors opting for such plans are assured of returns even in case of a market crash.
These features mentioned above make Systematic Deposit Plan a better alternative of Systematic Investment Plans. The former is especially beneficial for those who have recently started earning, unlikely to have ample disposable income and also don’t seek investment risk.
Additional features of an SDP are mentioned below –
- Only a minimum monthly deposit – One can deposit as low as Rs.5,000 per month in these savings plans. The minimum deposit amount helps individuals who have started their career to save without any hassle.
- Flexible lock-in periods – Individuals can choose lock-in periods between 12 to 60 months. They can create multiple accounts with different tenors based on their short-term and long-term financial goals.
- Flexible deposit dates – Customers have the option to deposit on the 3rd, 7th, or 12th of every month. It should be noted that the deposit date, once selected, will remain the same throughout the lock-in period.
- Automated payments – Depositors have to make the initial payment via an account payee cheque. Doing so links the financial account of the customer with the quick savings tool. With this, subsequent deposits are automatically debited from the linked account.
- Minimum documents required – Customers only have to submit the following documents when creating an account –
- PAN.
- KYC documents like Aadhaar Card, Voter ID, Driving License, Passport, etc.
- NACH mandate.
- Account payee cheque.
- Provision for a joint account – Systematic Deposit Plans can be created jointly by multiple customers.
- No penalty charges on missed payments – Customers will not be subjected to any penalty charges in case they fail to make a deposit in a particular month. However, They might be liable to pay a penalty towards the NACH mandate bank.
- Facility to discontinue anytime – Customers also have the option to stop depositing by cancelling their NACH mandate.
To conclude, a Systematic Deposit Plan can be more advantageous than a Systematic Investment Plan during market crash owing to its security features. Irrespective of what the market condition is, customers will not have to worry about their returns on investment.
