Do you need clarification on SIP Vs FD and which investment option to choose? This article will guide you about both SIP Vs FD and help you decide the best-fit investment option.
SIP or Systemic Investment Plan is a kind of investment for mutual funds for you to deposit a small amount of money in instalments. FD or Fixed Deposit is another investment option for people to deposit an amount for a pre-determined term to get to withdraw it with interest on its maturity. If you are unsure which deposit option to choose, understanding the concept of FD Vs SIP can help you make the right decision. Vakilsearch is your go-to platform for any mutual fund-related investment issues. Our Chartered Accountants are ready to help you in all possible ways (SIP vs FD).
What is an FD?
An FD or fixed deposit is an investment procedure offered by NBFCs or Banks and non-banking Finance Companies where people can keep a considerable amount of money for a pre-determined term. This is one of the safest investment options available where the investor puts a lump sum amount at a fixed interest rate for a pre-determined period. In this investment option, you are not allowed to break the Fixed Deposit within the term. In the case of an emergency, you can break the FD during its tenure by paying extra money to the NBFC. You will receive the entire invested amount plus interest after the tenure. Depending on your short-term and long-term objectives, you are supposed to choose from a variety of available FD options. If you make an investment in tax-saving FDs for 5 years straight, you will be able to enjoy tax benefits.
Best Fixed Deposit Schemes To Invest In India in 2024
| Banks Offering FD | Interest Rate | Senior Citizen Interest Rate | Tenure |
| AXIS Bank | 3.50-6.10% | 3.50-6.85% | 7 days-10 years |
| Bandhan Bank | 3.00% – 5.50% | 3.75% – 6.25% | 7 days – 10 years |
| Bank of Baroda | 3.00% – 5.65% | 3.50% – 6.65% | 7 days – 10 years |
| Canara Bank | 3.25% – 7.00% | 3.25% – 7.50% | 15 days – 10 years |
| HDFC Bank | 3.00% – 4.00% | 3.50% – 4.50% | 33-99 months |
| ICICI Bank | 3.00% – 6.00% | 3.50% – 6.60% | 7 days -10 years |
| Kotak Bank | 2.50% – 5.25% | 3.00% – 5.75% | 7 days – 10 years |
| Punjab National Bank | 3.00%-5.75% | 3.50%-6.25% | 1-10 years |
| State Bank of India | 3.00% – 5.85% | 3.50%-6.65% | 7 days-10 years |
| Union Bank | 3.00% – 6.70% | 3.50% – 7.20% | 7 days – 10 years |
What is SIP Investment (Systematic Investment Plan)?
A SIP Investment or Systematic Investment Plan is another investment option for people to allow deposit a small amount of money each month. If you are new to mutual funds, SIP Investment Plans are a great way to start. As people get to invest in their convenience, it is a great way to plan for future pursuits to achieve high-investment objects like houses, vehicles, or fees for higher studies. People are supposed to start with a SIP investment of a minimum of ₹ 500.
The Benefits of FD
FD comes with various benefits that can help you achieve your goals. The benefits of FDs are as follows-
- FD assures that you get guaranteed returns.
- You get the flexibility of investing as fixed deposits are subject to your decision of choosing the amount to be deposited and the period.
- Fixed Deposit investments are risk-free.
- Depending on the term and amount of the FD, you can get loans.
- You can avail of tax benefits if you invest in 5-year term tax-saving FDs.
- In the case of an emergency, FDs can be closed or you may even choose to make an overdraft retreat or withdraw the fund as an investor.
- You can even use FD as a document for a car loan application or use your FD as a security to apply for any credit card. It can especially benefit you if you have just started earning and do not have any reference for credit history.
Benefits of SIPs
SIPs can be as beneficial as FDS but in a different way. Here are some usual benefits of SIPs-
- People are supposed to invest in SIPs depending on their convenience. SIPs are easy to start with and you can even track your assets and their performance at your convenience.
- If you invest in SIPs for more than one year, you can enjoy great tax benefits.
- SIPs do not need you to track and monitor interest rates as you can make regular SIP investments.
- Since SIPs are open-ended funds, you can invest and withdraw money at any time at your convenience.
Difference Between SIP vs FD
FD Vs SIP both have identical yet different benefits to people interested in investing. Here is a closer look at SIP vs FD. how they are different from each other and which option is the best for you.
|
Parameters |
FD |
SIP |
| Investment Amount | FD allows you to make a lump sum investment and thus you are not required to invest after a while. | SIP has added benefits as people can start investing in small amounts or installments. Moreover, SIP investment can be done monthly or quarterly as the frequency of investment is up to the choice of the person. |
| Best Investment Option for | It is suitable for Conservative investors only. | It is suitable for both aggressive and conservative investors. |
| Risk Factor | Low | High |
| Interest Rate | You can be guaranteed higher returns irrespective of the invested amount of money in the FD. The interest rate is fixed according to the deposit you make. | SIPs offer higher interest rates than FDs but do not guarantee necessarily the best kind of returns. That is why it is necessary to consider the related risks attached to the returns. |
| Liquidity | High | Low/Medium |
| Returns | Guaranteed | Can’t be guaranteed |
| Nature of Returns | Interest | Dividends and capital gain |
| Taxes | FD is taxed based on the income tax bracket of the investor. Through a specific type of FD referred to as Tax Saving FD, the investor can claim tax deductions on a specific amount of investments. | Unlike FDs, for SIPs, if all the units of the mutual funds are sold after a year, the tax will be charged according to the long-term capital gains clause. If the SIP units are sold before completing a year, the tax charge will be 15%. |
As referred to by the table, you can notice a major difference in terms of tax, amount of interest and rates of interest. In the case of Tax saving fixed deposits, investors can claim ₹1.5 Lakhs to be deducted. In case you bought units after 31st January 2018, you will have to pay taxes for long-term capital gain. Considering the interest rate and amount required to be invested, it is also easy to start investing in SIPs as even with a small amount to start with, you can have the possibility to gain higher returns. On the other hand, FDs assure higher returns than SIPs in terms of the rate of interest. Even though the rate of interest is higher, the risk factor associated with it is also quite high. SIPs can be better than FDs if you consider tax benefits, the flexibility of investment, the advantage of diversification, and higher returns. This is why investing in a SIP investment plan is considered more beneficial than the fixed deposit investment option.
Is SIP Better than FD?
| Feature | SIP (Systematic Investment Plan) | FD (Fixed Deposit) |
| Nature of Investment | Investing a fixed amount regularly in mutual funds. | Depositing a lump sum for a fixed period. |
| Risk | Can be higher as it depends on market fluctuations. | Low, as returns are fixed and guaranteed. |
| Potential Returns | Can be higher, especially over the long term due to market growth. | Generally lower than SIPs but fixed and known upfront. |
| Liquidity | Generally high, can withdraw money with possible minor charges. | Moderate, early withdrawal may lead to penalties. |
| Suitability | For those looking for growth and can tolerate market risks. | For those seeking safety and fixed returns. |
| Investment Period | Best for longer terms to ride out market volatility. | Suitable for both short and long terms, based on the deposit term. |
| Tax Efficiency | Can be more tax-efficient, especially in equity funds. | Interest is taxable, which might reduce net returns. |
Conclusion
SIP vs FD – Even though it might feel like Fixed Deposits are the safest hence the best option for putting hard-earned money in, mutual fund SIPs can be helpful for certain properties. If you want to invest in mutual funds for the very first time, SIPs can be the option for you. However, if you want a safe investment plan with assured higher returns, go for Fixed deposits. Therefore before undertaking any SIP investment, you should measure the risks involved and choose the one at your convenience. Connect with Vakilsearch to know more in this regard.
FAQ:
What is SIP Investment?
SIP (Systematic Investment Plan) is a disciplined approach to investing in financial markets, where individuals regularly contribute a fixed amount of money at predetermined intervals into mutual funds, helping them accumulate wealth over time through the power of compounding.
Is SIP Better Than FD?
SIP (Systematic Investment Plan) offers the potential for higher returns over the long term compared to FD (Fixed Deposit), but it involves market risk. FD, on the other hand, provides guaranteed returns and is a safer option for capital preservation but typically offers lower returns. Choosing between the two depends on your financial goals and risk tolerance.
Does SIP give better returns?
SIPs have the potential to offer better returns compared to traditional savings methods like FDs, especially over the long term due to the power of compounding and market growth. However, the returns are not guaranteed and depend on market performance.
Which plan is better than FD?
Whether a plan is better than an FD depends on your financial goals, risk appetite, and investment horizon. SIPs in mutual funds can be better for long-term growth, while FDs are preferred for guaranteed returns and lower risk.
Can I cancel my SIP at any time?
Yes, you can cancel your SIP at any time. There are generally no penalties for cancelling a SIP, but it's wise to check the terms of your specific investment.
Is SIP good to invest?
SIPs encourage disciplined investing and benefit from rupee-cost averaging, making them a potentially good option for long-term wealth building, but suitability depends on your individual goals and risk tolerance. Research, seek advice if needed.
What are the disadvantages of SIP?
The returns are subject to market risks, and there could be periods where the value of your investment goes down. SIPs require discipline and a long-term perspective, as short-term market fluctuations can affect your investment value.
Are SIP Taxes Exempt?
SIPs themselves are not tax-exempt. Taxes depend on the type of mutual fund you invest in. Gains exceeding ₹1 lakh are taxed at 10% without indexation. Debt funds are taxed based on the holding period, with short-term gains added to your income and taxed as per your slab, and long-term gains taxed at 20% with indexation.
Is interest earned from fixed deposits taxable?
Yes, the interest earned from FDs is taxable as per your income tax slab. Banks also deduct TDS (Tax Deducted at Source) if your interest income from FDs exceeds a certain threshold in a financial year.
Is it possible to cancel fixed deposits?
Yes, you can cancel or prematurely withdraw your FD, but it often comes with a penalty, which varies from bank to bank. This penalty could be in the form of a lower interest rate on the deposited amount for the period the FD was held with the bank
