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Fixed Deposit vs SIP

If you want to grow your money and bring financial stability into your life, investing is the only way to do so. In order to invest your money well, you must have some knowledge. However, if you do not invest your savings, you risk losing money to inflation. Investors believe FDs to be one of the oldest and safest fixed-rate savings tools. SIPs, on the other hand, may assist you in achieving higher returns but do not guarantee them. Fixed deposit vs SIP (Systematic Investment Plans) have a lot of differences. Tax, nature of returns, risk factor, returns, kind of investment, liquidity are some of the common parameters used to distinguish between the two.

What is a Fixed Deposit?

Fixed Deposits, or FDs, are a common savings product which banks offer for both short- and long-term investments. An investor invests a lump sum amount for a certain period of time at a fix rate of interest. It is one of the safest investment options in the market because it guarantees a return on the investor’s investment. Because the establishment of rate of return on Fixed Deposits is made by the Indian government, rising inflation has no effect on the returns on these investments. 

Banks offer a variety of fixed deposit options to cater the requirements of investors for both their short and long-term goals. Fixed deposits also have a number of advantages. The best thing about fixed deposits is that you can expect a guaranteed return on your investment. Fixed deposit investments are tax-free. Fixed deposits offer flexibility because investors can select the time period and amount of the FD. You may be eligible for a loan based on your fixed deposit investment. However, in the event of an emergency you can immediately close the Fixed Deposit and withdraw the funds. Moreover, if you invest in tax-saving fixed deposits for five years, you will be entitled for a variety of tax benefits.

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What is SIP?

A SIP, or systematic investment plan, is the best financing tool for a beginner if you want to invest a certain amount in a mutual fund scheme on a monthly basis. Generally, when you invest in SIP, the funds go in an equity mutual fund. SIP is one of the best ways to start investing. As compared to a fixed deposit you will be able to build a huge sum of money in a short period of time. You can get significant returns by investing in mutual funds through a systematic investment plan (SIP). Investing in SIP has a number of advantages. The investor can invest his money as per his requirements.

The investor is also able to track the performance of the investments. It is really simple to start investing in a SIP. You receive different tax benefits if you invest in a SIP for more than a year. SIPs allow you to invest in open-ended funds, which means you can withdraw and reinvest your money at any time. 

Difference between SIP vs FD

BasisSIPFD
Type of InvestmentInstallmentsLump Sum
Return on InvestmentNo GuaranteeReturns come with a Guarantee
Risk FactorHigh Risk FactorLow Risk Factor
TaxNo tax is charged if the mutual fund units are sold after a year. However, 15% tax is charged if the units are sold within a year.Tax is incurred on the basis of the income tax slab under which the investor falls.
LiquidityLow or Medium LiquidityHigh Liquidity

Investment Amount

If we look at the investment options available to potential investors in terms of SIPs and FDs, we can see that both financial instruments are simple to get started with. When it comes to SIPs, however, it is considerably easier, as one may start with a nominal amount and yet have a possibility to earn bigger returns if the companies in which the investments are made are performing well. However, if the investor is not willing to take any risk, then FD is the best option to start investing as it offers a guarantee on its returns.

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Return on Investment

Although the interest rates offered in SIPs are higher than those offered in FDs, this does not guarantee a good return. As a result, when it comes to return on investments. Any SIP investment is purely on the basis of the investor’s luck. However, in the case of FDs, regardless of the investment amount, the investor has a guarantee to receive higher returns.

Taxes

When it comes to tax savings. Most FDs are liable to pay taxes according to the income tax bracket in which the investor falls. Although all FDs impose taxes on people, there is one sort of FD known as a tax saving FD that allows investors to deduct up to INR 1.5 lac in contributions. However, the mutual funds sold after a year are tax free. But the investor has to pay a set percent of tax, just as it is with SIP.

Though, investing in mutual fund SIPs can be beneficial, if the decision is after taking all risks into account. However, FDs are the safest option available to investors when it comes to investing the hard earned money. Because banks have recently lowered interest rates on FDs. Both conservative and assertive investors can conduct their study before investing in mutual fund SIPs, which can result in higher returns on their investments.

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