SIP Vs Fixed Deposit (FD): Which Is better for Investment?

Difference Between SIP And Fixed Deposit
Conclusion

Fixed deposits are investment products. You can invest in fixed deposits for fixed tenures as per your convenience and get attractive returns on your investments at maturity. Normally, banks do not allow you to withdraw your deposits before a given maturity date. But, with prior notification to the bank, you can withdraw your fixed deposits. These deposits allow you to invest for a minimum period of 7 days to a maximum period of 10 years.

SIP or Systematic Investment Plan is a method of investing in mutual funds. You can invest a fixed amount every month in a mutual fund through SIP. The regular investment strategy averages out your purchase price and protects you from inadvertently catching a market peak when you invest. A SIP also gives you more mutual fund units, when the fund price drops.

Difference Between SIP And Fixed Deposit

Let’s take a closer look at the differences between fd and sip:

1. Investment Amount

If we look at the investment type available to potential investors about SIPs and FDs, it is easy to start investing in both financial instruments. However, considering the rates that they offer, it is comparatively easier when it comes to SIPs as one can start with a small amount and yet have a chance to earn higher returns if the companies in which the investments have been made are doing well.

2. Interest Rates

Considering the rates of interest offered in SIPs are higher as compared to that of FDs, it does not guarantee a potential investor great returns. Hence, when one invests in SIPs, it is up to pure luck when it comes to guaranteed returns. In the case of FDs, one who invests in it is sure to get higher returns irrespective of the sum he/she has invested in the FD.

3. Taxes

When it comes to the important topic of tax saving, tax is levied on most FDs based on the income tax slab that the investor falls under. Though all the FDs charge taxes on individuals, there is one type of FD called tax saving FD where the investors can claim deductions on investments up to Rs. 1.5 Lakh. As in the case of SIPs, though no tax is charged if the mutual fund's units are sold after a year, a certain percentage of tax is levied on the investors.

Conclusion

Though FDs are the safest option available to investors when it comes to investing hard money without giving a second thought, investing in mutual fund SIPs can also be beneficial if the decision to invest is taken after taking all risks into account. With the interest rates on FDs slashed by banks in recent times, both conservative and assertive investors can do prior research on investing in mutual fund SIPs which can result in higher returns on the investments made.