Mutual FundWealth

Systematic Investment Plan (SIP) vs Fixed Deposit (FD)

What is SIP?

A systematic investment plan or SIP is an investment vehicle which allows you to invest a fixed sum of money on a regular basis in a mutual fund scheme.

Benefits of SIP
  • Since investments in SIP are spread out over a long period of time, it helps in averaging the cost of your investment as opposed to a lump sum invested at a single point in time.
  • SIP investment is very flexible as investments can be made at frequencies (monthly, bi-monthly, etc.) you prefer. Also, investors can increase or decrease the amount of investment as per their requirement.
  • SIPs are appealing to the masses because of their affordability as you can start investing in SIP with as low as Rs 500 each month.
  • A SIP negates the need of timing the markets. Since you are investing regularly, you are able to capture both, the market highs and lows.
  • SIP mutual funds are a smart and disciplined way of saving money and meeting your financial goals.

What is FD?

Fixed deposit is a financial instrument provided by banks and companies. The investor gets a fixed rate of interest for a given time period. Your money is locked in until the maturity of the fixed deposit which could range from 7 days to 10 years.

Benefits of FD
  • A fixed deposit is suitable for conservative investors with a low appetite for risk as the rate of return is assured and known in advance.
  • It offers depositors flexibility with regard to amount and time period of investment.
  • In case of an emergency, money deposited in a FD can be withdrawn at a nominal charge or you can even avail an overdraft facility on the deposit.
  • Investing in tax-saving FDs for 5 years, entails various tax benefits.

Difference between SIP and FDs

Parameters        SIP     Fixed deposit
Suitability All types of investors. Conservative investors with low risk appetite.
Liquidity High Low to medium
Returns Vary with the market. Predetermined fixed rate of return
Tenure Long-term investment Both short-term and long-term investment
Taxation Equity funds and debt funds are taxed differently. However, capital gains up to Rs 1 lakh in case of investments in equity and equity funds are tax-free per financial year. Tax is levied on the basis of the investors tax slab.

Investors can choose between SIP and Fixed Deposit based on their risk appetite and other factors mentioned in the table above. If you want to invest for a longer period of time, SIP has been proved to effectively beat inflation while growing your wealth. On the other hand, over a longer time period, FDs are wealth destroyers due to the low rate of interest. SIP is a simple and convenient method of asset building. You can invest in a SIP online either through your bank account or by directly logging on the mutual fund website.

Vikas Agarwal
the authorVikas Agarwal
Vikas Agarwal is an IIT-Varanasi graduate in Chemical Engineering. He is the Founder and CEO of - an investment advisory website. He is a Business Development Professional but a Value Investor at heart. He writes articles on Finaacle, which focus on simplifying the art of investing and the causes of human misjudgment when it comes to investing. He also shares his experiences as an investor and lessons from some of the greatest investors of all time.

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