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Which One Should I Choose- SIP or FD?

Updated On Nov 20, 2021

A SIP is one of the strategies to invest in mutual funds (Systematic Investment Plan). SIP allows individuals to invest a predetermined amount of money in any mutual fund plan at predetermined intervals — weekly, monthly, quarterly, and so on.On a certain date, money is automatically deducted from the investor's bank account and directed to the mutual fund scheme of the investor's choice.

Fixed deposit accounts are a secure way to invest. Investors can pick from a variety of Fixed Deposit Schemes, depending on their short- or long-term objectives. Fixed deposits also provide investors with guaranteed profits. Depending on the size of the FD, investors can acquire a loan against it
The interest rate on the FD is higher than the interest rate on a standard savings or pay account. Breaking a fixed deposit with a bank, on the other hand, is not advised. For an early closing penalty, a premature withdrawal is permitted.

In this article, we have prepared a comparison between the two schemes to facilitate a better understanding of the concept.

SIP Or FD: What To Choose?

Here is a brief comparison between the two schemes:

1. Returns On Investment

The returns in a SIP are volatile. The success of the stock market is entirely dependent on SIP returns. SIPs in mutual funds will perform well if the stock market does well. During bull markets, however, SIPs consistently outperform fixed deposits.

A Fixed Deposit's interest rate is set in stone. Fixed deposit earnings are guaranteed payments for the life of the account. The bank that an individual chooses determines the rate of return on a fixed deposit.

Must Read: Which is Better- Term Insurance or Fixed Deposits?

2. Policy Tenure

SIP investments are often preferred for long-term investing. In the context of equities funds, SIPs are sometimes referred to. It implies that the higher the return on investment, the longer the investment horizon. The compounding effect also aids in the acquisition of wealth and the building of a corpus over time for investors.

Traditional investment options include fixed deposits. Short-term and long-term investing strategies are available. Fixed deposits are available for 6 months, one year, or five years.

3. Market Risk Comparison

In comparison to SIP, the risk appetite of FD is thought to be lower. Banks commonly provide FDs. SIP's risk appetite, on the other hand, is greater than that of FD. The probability of loss decreases when the SIP is held for a longer period of time.

4. Taxation On Policies

When it comes to tax savings, most FDs are taxed according to the investor's income tax bracket. Though all FDs levy taxes on people, there is one sort of FD known as a tax saving FD that allows investors to deduct up to Rs. 1.5 lakh in contributions. Though there is no tax if the mutual fund units are sold after a year, the investors are subject to a set percentage of tax.


Before selecting to invest, every investor must think about his or her financial objectives. Investments, whether SIPs or FDs, must be aligned with the investor's short or long-term financial goals. Before opting to invest in a SIP, investors should have a thorough awareness of risk. FD is a better option for those who have a low risk tolerance and want assured returns.

Also Read: Know Everything About SBI PPF Account

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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