One of the best form of savings that many individuals have created wealth is by investing a fixed sum every month.

1) Systematic Investments Plans or SIPs

Systematic Investments Plans can be opted by investing in mutual funds. Under these SIPs one can invest a small sum each month with an investment of as low as Rs 1000.

a) Returns from SIPs

Now, when you invest in an SIP you invest in the mutual fund scheme and based on your choice they will allocate money into equity or debt. Now, Equity mutual funds in the last 5-10 years have generated sizeable returns and in fact in excess of bank deposits.

In some cases the returns in the last 10 years has been around 12-22 per cent. This does not mean that each year you would get such stupendous returns, but by holding for the long term it is possible to get these kind of returns. Nothing is assured though and in fact you may even end-up eroding your capital if the stock markets crash.

b) Taxation on SIPs

If you hold onto an Equity Mutual Fund SIP there is no capital gains if you hold onto the same for more than a year. This makes them tax free and an excellent vehicle for investment.

2) Recurring Deposits

You can invest in recurring deposits either of banks or post offices. Many individuals prefer other ways of investing monthly through chit funds. But, here we would only consider bank and post office recurring deposits.

a) Returns on recurring deposits

Returns on recurring deposits are assured. You know of the interest and can more or less estimate the amount. The one good thing of these deposits, is that you can invest by knowing the corpus you want to build. For example, if you want to build a corpus of Rs 3 lakhs for a marriage, you know exactly how much you need to invest, unlike an SIP where nothing is assured. Bank and post office recurring deposits are absolutely safe

b) Taxation on recurring deposits

Recurring deposits are not tax efficient. Interest income from recurring deposit is added to total income for the purpose of declaring tax liability.

Also, there is now a TDS that will be applicable on recurring deposits if the interest income exceeds Rs 10,000.

Conclusion

If you are willing to take a risk, then SIP is a good investment bet. On the other hand if you are risk averse then you may prefer a recurring deposit. In either case, at least opt for one of these as you are building a corpus for generating wealth in the long term.

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