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SIP or FD: Which Is the Better Option?

Updated On Aug 21, 2021

When it comes to investments, there are multiple options available in India.  However, SIPs and FDs are the two most popular choices that are often invested in. If you too are willing to invest in any of the two, but unable to differentiate between them and find the best one for yourself, here’s some help!

What is a SIP?

SIP or Systematic Investment Plan is basically a mutual fund investment product. It allows the investor to make small investments on a monthly basis in equity and debt instruments. SIPs are known to offer good returns. What’s best is that investing in SIPs can help in developing a habit of making on-time investments, thereby leaving the investor with a significant amount by a certain time. 

Benefits of SIPs

Key benefits include:

  • Freedom to invest as per one’s needs. 
  • Keeping a track on the performance of investments is allowed.
  • No need to look after interest rates.
  • Tax benefits when invested in SIPs for more than a year.
  • Investment and withdrawal of money at any time.

What is an FD?

FD or fixed deposit is a financial instrument. In FDs, investors put a lump sum amount for a certain time period at a fixed interest rate. Considered a highly safe investment option, FD guarantees higher returns on the investment made. FDs are available in multiple types at banks and non-banking financial companies. The investor can choose their FD type based on their short term or long term goals.

Benefits of FDs

Key benefits include:

  • Guaranteed returns.
  • Risk-free investment. 
  • Flexibility in terms of investment amount and time.
  • Loans based on FD investments allowed.
  • Closed or an overdraft withdrawal of FD allowed in emergency situations.
  • Tax benefits on investing in 5-year tax saving FDs

Must read: Difference Between Term Insurance, SIP and FD    

Which One is Better for You?

Both SIPs and FDs have their own benefits. While both may look similar, there are multiple differences. Let us find out the best option for you based on the differences.

  • If you would prefer installment as your investment type, go for SIP. If you are comfortable with lump sum investment, go for FD. 
  • If return on investment does not bother you much, choose SIP. If you want guaranteed returns, choose FD. 
  • If capital gains and dividends suit you as the nature of the return, opt for SIP. If interested in ‘interest’ as the nature of the return, opt for FD. 
  • If you have a high-risk appetite, go for SIP. If you do not want to indulge in risk, choose FD. 
  • If low/medium liquidity goes well with you, choose SIP. If you want a high liquidity option, choose FD.

Overall, conservative and aggressive investors choose SIPs and conservative investors go with FDs. FDs are considered the safest option, however, one can invest in mutual fund SIPs and gain benefits after taking the decision while keeping all risks in mind. 

At last, no matter which option you choose, it is advised to understand your requirement as well as each investment option offers. 

Also read

How Can I Invest in a Mutual Fund Through SIP?

Disclaimer: This article is issued in the general public interest and meant for general information purposes only. Readers are advised not to rely on the contents of the article as conclusive in nature and should research further or consult an expert in this regard.

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