SIP vs FD – Which is Better?

Deciding between SIPs vs. FDs is important for your money. SIP investment in India helps you to invest regularly, while a Fixed Deposit (FD) scheme keeps your money secure but offers fixed FD interest rates. Let us explore the benefits difference between SIP and Fixed Deposit to determine which might be the better option for your financial needs.

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SIP Benefits
Start SIP with as low as ₹1000
Start SIP with as low as ₹1000
No hidden charges
No hidden charges
Save upto ₹46,800 in Tax
Save upto ₹46,800 in Taxunder section 80 C
Zero LTCG Tax
Zero LTCG Tax^ (Unlike 10% in Mutual Funds)
Disciplined & worry-free investing
Disciplined & worry-free investing

What is SIP?

A SIP, or Systematic Investment Plan, is a way to invest money in market-linked funds regularly. Instead of putting in a lump sum, you invest a fixed amount at regular intervals, like monthly or quarterly. 

A best SIP plan in India offers the benefits like disciplined investing, rupee cost averaging, and the power of compounding over time. You can estimate your returns from your chosen best investment plan in India through SIP by using an online SIP Calculator.

What is an FD?

A Fixed Deposit (FD) is a type of best investment option offered by banks where you deposit a certain amount of money for a fixed period. In return, the bank pays you a fixed FD interest rate on your deposit, which is usually higher than a regular savings account.

An FD is considered a safe investment option because they offer guaranteed returns and are protected by the government up to a certain limit. However, you cannot withdraw your money before the fixed period ends without incurring a penalty. 

You can use an FD Calculator to estimate your interest earned as per the predetermined FD interest rates.

Difference Between SIP and Fixed Deposit

A SIP investment in India and a Fixed Deposit scheme are both ways to save and invest money, but they differ in many ways. Let us learn the key difference between SIP and Fixed Deposit from the table mentioned below:

Feature SIP (Systematic Investment Plan) Fixed Deposit
Type of Investment Mutual Fund Bank Deposit
Returns Market-linked Fixed
Risk Moderate Low
Liquidity High Low
Investment Period Flexible Fixed
Minimum Investment Relatively low Relatively high
Taxation Subject to capital gains tax Interest is taxed as per income tax slab
Flexibility Can increase or decrease investment amount Cannot withdraw before maturity without penalty

Which is Better: FD or SIP?

It is difficult to decide which is better, FD or SIP. It completely depends on your financial goals, risk tolerance, and investment timeframe. Following is a breakdown for SIP vs. FD to help you decide:

  1. Fixed Deposit (FD):

    • Guaranteed Returns: FDs offer a fixed interest rate for the chosen tenure.

    • Low Risk: Considered a safe investment with minimal risk of principal loss.

    • Suitable for: Short-term goals and risk-averse investors seeking capital preservation.

  2. Systematic Investment Plan (SIP):

    • Potential for Higher Returns: SIP invests in mutual funds, which have historically offered higher returns than FDs. However, returns are not guaranteed and fluctuate with the market.

    • Rupee Cost Averaging: SIP allows you to invest a fixed amount regularly, averaging out the cost per unit purchased.

    • Compounding: Reinvesting your earnings allows your money to grow exponentially over time.

    • Suitable for: Long-term goals and investors comfortable with moderate risk.

In Conclusion:

  • Consider FDs for guaranteed returns, short-term goals, and low-risk tolerance.

  • Choose SIPs for potentially higher returns, rupee-cost averaging, compounding, and long-term goals with moderate risk tolerance.

  • You can use a SIP vs. FD Calculator to make a comparison between the final returns offered by both at the end of your FD and SIP investment plan in India.

Benefits of Investment Diversification

Diversification is a cornerstone concept in investing, and for good reason. It offers a number of advantages to investors:

  • Minimizes Risk: Diversification spreads investments across different assets, reducing the impact of a single investment's poor performance.

  • Enhanced Returns: By investing in various assets, you have the opportunity to benefit from the growth of different sectors or markets.

  • Smoothes Out Volatility: Diversification can help cushion the impact of market fluctuations on your overall portfolio.

  • Provides Opportunity for Growth: Investing in diverse assets allows you to tap into various opportunities that may arise in different sectors or regions.

  • Increases Flexibility: Diversification gives you the flexibility to adjust your portfolio according to changing market conditions or investment goals.

Sum It Up

Both SIP vs FD serves the best investment options with distinct features. SIP offers the advantage of rupee cost averaging and potential for higher returns over the long term, while FD provides stability and guaranteed returns. The choice between SIP vs. FD depends on individual financial goals, risk tolerance, and investment horizon.

FAQs

  • Is SIP better than FD?

    The suitability of SIP (Systematic Investment Plan) vs. FD (Fixed Deposit) depends on your financial goals and risk tolerance. SIP is generally considered better for long-term wealth creation due to potential higher returns from investing in mutual funds, but it comes with market risk. FD, on the other hand, offers guaranteed returns but tends to have lower returns compared to equity investments over the long term.
  • Which is better, mutual fund or FD?

    The right investment plan between a mutual fund scheme and an FD depends on your financial objectives and risk appetite. Mutual funds offer diversification across various asset classes and potentially higher returns, but they come with market risk. FDs provide safety and guaranteed returns but typically offer lower returns compared to mutual funds, especially over a longer investment horizon.
  • Does SIP give better returns?

    SIP can potentially provide better returns compared to traditional investment options like FDs over the long term. By investing regularly over time, SIP allows investors to benefit from the power of compounding and rupee cost averaging. However, returns from SIPs are subject to market fluctuations and may vary based on the performance of the underlying mutual fund scheme.
  • Which is best: RD, FD or SIP?

    The best option among RD (Recurring Deposit), FD, and SIP depends on your financial goals, time horizon, and risk tolerance. RD and FD are suitable for investors seeking safety and guaranteed returns, while SIP is preferable for those willing to take on market risk in exchange for potentially higher returns over the long term. It's essential to assess your financial situation and consult with a financial advisor to determine the most suitable investment option for you.

+For Mutual Fund midcap category Returns https://www.morningstar.in/tools/mutual-fund-category-performance.aspx & for Insurance midcap fund category Returns- https://www.morningstar.in/tools/insurance-fund-category-performance.aspx
*Past 10 Year annualised returns as on 01-12-2023
*All savings are provided by the insurer as per the IRDAI approved insurance plan. Standard T&C Apply
^The tax benefits under Section 80C allow a deduction of up to ₹1.5 lakhs from the taxable income per year and 10(10D) tax benefits are for investments made up to ₹2.5 Lakhs/ year for policies bought after 1 Feb 2021. Tax benefits and savings are subject to changes in tax laws.
~Source - Google Review Rating available on:- http://bit.ly/3J20bXZ
^^The information relating to mutual funds presented in this article is for educational purpose only and is not meant for sale. Investment is subject to market risks and the risk is borne by the investor. Please consult your financial advisor before planning your investments.

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