Which One Is Better : FD or SIP?

These days the trend of investing the money in the SIP investment schemes is on a rise. Undoubtedly, FDs offer the higher security of the investment but what about the return which is the main aim of investment? With rising inflation, the interest rates on the fixed deposits kept by the banks have been continuously falling. In such a situation a mutual fund or what we call a SIP can be a great alternative for investment.

In this article, we will compare the FD and SIP on the basis of various points.

  • Returns : The returns earned on an investment in SIP fluctuate and can go down with the market. But the returns of an FD are fixed and thus are free from fluctuation.
  • Scope of inflation adjustment : The rates of a mutual fund have greater chances of getting adjusted with the inflation as compared to that of the fixed deposits which have a fixed interest rate.
  • Form of returns : A SIP offers you return in the form of capital gains and dividends which are obviously higher as compared to that of an FD. Fixed deposits, on the other hand, earn returns only in the form of interest on the amount deposited.

Which One Is Better : FD or SIP?

  • Liquidity : The funds invested in SIP are more liquid as they can be withdrawn when needed or in a short period of time. Some mutual funds charge an exit load but not all do this. The FDs, on the other hand, are quite illiquid in nature as you cannot withdraw the money till the tenure of the deposit ends.
  • Risk factor : As we have already discussed the FDs involve low or no risk as they are not linked to the market. The SIP, on the other hand, involves low to medium risk factor as it is linked to the market determined rates.
  • Mode of investment : The funds in a SIP can be invested at regular intervals such as weekly, monthly, quarterly, and annually. But fixed deposits do not offer you this convenience. You need to make a lump sum investment all at once.
  • Availability of the professional expertise : When you invest your money in the SIP you can avail the assistance of the fund managers. They guide you from the beginning to the end. There is no such service available in the case of fixed deposits.
  • Taxation : It is a crucial factor to be considered before making your investment. In the case of FD, the tax that is levied on you is according to the tax slab you fall into. Mutual funds, on the other hand, are taxed according to their categorization.

Comparison of HDFC SIP and HDFC FD

When you use the SIP calculator to get the returns you can see the difference. For example if the monthly investment is INR 10000 and the tenure is selected to be 3 years then the amount earned would be INR 67638.

On the other hand if you use the FD calculator you’ll see that the wealth earned is quite less in comparison to that of the SIP. For example when we invest INR 120000 annually for a period of 3 years the amount earned is just INR 18904,

This huge difference in the earnings makes SIP the best investment avenue.

You can also use the FD calculator and SIP calculator tools provided by the websites such as upwardly.com, moneycontrol.com, etc. in the end the decision to invest in an FD or SIP rests on an individual. Mutual fund works on average cost and thus will always give you an average return. So considering the return factor, SIP is the best instrument to invest in.