The biggest difference between SIP and FD is that SIP is a way to invest in a mutual fund where the investor invests in installments. On the other hand, Fixed deposit (FD) is a scheme offered by banks and post offices where the investor has to make a one-time or lump sum investment for a certain period.
Contents:
- What Is Sip Investment?
- Fixed Deposit Meaning
- SIP vs FD
- Sip Or FD Which Is Safe?
- How To Invest In FD?
- How To Invest In SIP?
- Quick Summary
- Frequently Asked Questions
What Is Sip Investment?
The full form of SIP is Systematic Investment Plan. SIP is the most preferred way to invest in mutual funds as it allows an individual to make regular investments in the stock market. Basically, you choose a mutual fund scheme and opt for SIP, where you make a fixed amount of investment monthly/quarterly, depending on your convenience.
SIP investment is the best way to inculcate the habit of investing. The best thing is to start a SIP from as minimum as Rs. 500. Opting for SIP is suitable for those earning a fixed salary.
Let’s understand with an example. You start a monthly investment of Rs. 12,000 in a mutual fund scheme for 23 years, assuming an annual interest of 12%. After 23 years, the total value of your investment will be ₹1,76,76,688, and the total estimated return is ₹1,43,64,688 on the invested amount of ₹33,12,000. This is the best way to grow wealth in the long term: live your golden years without adjusting your lifestyle.
Fixed Deposit Meaning
FD full form is a fixed deposit. Fixed deposit is a scheme where you invest a considerable amount once for a certain period. The returns you earn on a fixed deposit are fixed and can range from 4% to 7.25%. The best thing about fixed deposits is that no matter how the economy performs, how the stock market moves or interest rates move, you will receive guaranteed returns at the time of maturity.
When preserving your wealth, a fixed deposit is the best option as it allows you to park a lumpsum amount of money.
SIP vs FD
The major difference between SIP and fixed deposits is that Systematic Investment Plan (SIP) is an investment strategy in which investors regularly invest a fixed amount of money at regular intervals (usually monthly) in a mutual fund scheme. On the other hand, a fixed deposit involves investing a huge sum of money for a certain period to earn guaranteed returns.
| Factors | Systematic investment plan | Fixed Deposit |
| Returns | Offer better returns than a fixed deposit, but the returns are not guaranteed | Offer fixed returns |
| Suitable for | Aggressive investors | Conservative investors |
| Risk | High – Low | Low |
| Investment amount | It can start with a small amount, such as Rs. 500. | Requires a lump sum amount |
| Lock in period | No lock-in period. Investors can withdraw their investments anytime | Fixed lock-in period, and there is a penalty for early withdrawal |
| Nature of returns | Capital gains and dividends | Fixed interest |
SIP vs FD – Type of Investor
SIP is suitable for aggressive or moderate investors. On the other hand, fixed deposit is suitable for conservative investors.
SIP vs FD – Returns
SIP offers the potential for higher returns than fixed deposits in the long run, but the returns are not guaranteed as they are subject to market volatility. Fixed deposit offers fixed returns at a predetermined interest rate.
SIP vs FD – Type of Investment
SIP involves investing in mutual funds that invest in the equity market, while the fixed deposit is a type of investment in which you deposit a lump sum amount for a fixed period.
SIP vs FD – Liquidity
SIP investments are more liquid than fixed deposits, as you can withdraw your money anytime without penalty. In contrast, fixed deposits have a fixed lock-in period, and if you withdraw your money before the maturity date, you may have to pay the penalty.
SIP vs FD – Risk
SIP is a high-moderate risk investment linked to the equity market and is subject to market volatility. On the other hand, a fixed deposit is a low-risk investment as it offers fixed returns and as they are not linked to the equity market.
SIP vs FD – Nature of Returns
SIP offers returns in the form of capital gains and dividends, while fixed deposit offers fixed interest.
SIP vs FD – Tax
Both SIP and fixed deposits are taxable. For SIP, short-term capital gains (STCG) tax of 15% is applicable if the investment is held for less than one year, while long-term capital gains (LTCG) tax of 10% is applicable if the investment is held for more than one year (If the total interest earned is more than Rs. 1 lakh). For a fixed deposit, the interest earned is added to your income and is taxed according to your tax slab.
SIP Or FD Which Is Safe?
SIP is a better investment option than FD. When it comes to flexibility, earning higher returns, and diversification benefits, opting for SIP is a better option than a fixed deposit.
SIP and FD have different features and suit different types of investors. For example, if you are a conservative investor, you should invest in fixed deposits as they give fixed returns. On the other hand, if you are an aggressive investor, invest in mutual funds through SIP, and if you are a moderate investor, consider spreading your investment in FD and SIP.
So, before choosing any investment option, understand what type of investor you are and what kind of returns you expect, and consider your risk tolerance, investment horizon, and financial situation.
How To Invest In FD?
Steps to invest in the fixed deposit are given below:
Step 1- Check the FD rates of different banks
Before investing in an FD, checking the interest rates offered by different banks or post offices is important. You should keep in mind that FD interest rates vary between different banks. Small finance banks usually offer higher interest rates if you want to earn high interest. Another thing you need to remember is that senior citizens are often entitled to receive a higher interest rate on FD.
Step 2- Decide the tenure of your investment
The tenure of a fixed deposit can range from 7 days to 10 years. So, choose the tenure according to your requirements.
Step 3- Decide the frequency of interest payouts
After deciding on the tenure of your fixed deposit, the next step is to choose the frequency of interest payouts. You can choose from monthly, quarterly, half-yearly, or annual interest payouts. You may opt for monthly or quarterly payouts if you are looking for regular income.
Step 4- Choose the mode of deposit
You can start investing in fixed deposits both online and offline. If you choose to invest online, you must log in with your Internet banking credentials and open a fixed deposit account with your bank. And if you choose to invest offline, visit the nearest branch of your bank. Fill out the form and submit all the necessary documents.
How To Invest In SIP via Alice Blue?
You can start your SIP via Alice Blue, both online and offline. If you don’t have a Demat account, check the account opening process and begin your investment journey.
To start SIP in mutual funds, follow these steps:
1. Know the objective of your investment and risk appetite
The first step to understanding the objective of your investment, you should know why you are investing. For example, are you investing in growing your wealth or creating a retirement corpus? Also, make sure to consider your risk appetite. If your risk appetite is low, consider investing in less risky investments. On the other hand, if your risk appetite is high, invest in risky investments.
2. Choose the right mutual fund
There are a plethora of types of mutual funds that cater to the need of different investors. So make sure to choose the mutual fund that suits your risk profile, the objective of your investment, and your investment timeline.
3. Start SIP
Once you select the type of mutual fund you want to invest in, start your SIP investment. Visit the mutual fund’s website, or you can directly go to the AMC or contact a distributor/agent. You can also open a Demat account with a broker that matches your requirements.
4. Complete the KYC
Completing the KYC is a mandatory step. All you need to do is submit the documents, including identity proof, address proof, income details, bank details, and PAN card details.
5. Decide the amount and the frequency of your investment
Decide the amount you want to invest after considering your income, investment goals, and risk appetite. Choose the frequency of your investment. It can be monthly or quarterly. Ensure that the amount you decide and the frequency align with your financial situation and investment goals.
6. Track your investment
After you start your SIP, make sure to check the performance of your investment from time to time. You can also change the SIP amount according to your investment goals.
Do you want to expand your knowledge about mutual funds? We’ve got a list of must-read blogs that will help you do just that. Just click on the articles to find out more.
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| Mutual Fund Vs Index Fund |
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| ULIP vs SIP |
| SIP vs ELSS |
| Weekly Sip Vs Monthly Sip |
| Flexicap Mutual Fund |
| Types Of Debt Mutual Funds |
Quick Summary
- SIP is a way to invest in mutual funds by making regular installments, while FD is a one-time lump sum investment for a fixed period. SIP involves investing in mutual funds that invest in the equity market.
- FD is an investment in which you deposit a lump sum amount for a fixed period.
- SIP offers the potential for higher returns than fixed deposits in the long run, but the returns are not guaranteed and are subject to market volatility. In contrast, FD offers fixed returns at a predetermined interest rate.
- SIP and FD have unique features and are suitable for different types of investors based on their risk appetite and investment goals.
- Invest in fixed deposits after checking the FD rates, deciding the tenure of your investments, and the frequency of interest payouts.
- Invest in SIP after Choosing the right mutual fund that suits your risk profile and investment objectives.
Frequently Asked Questions
SIP is a method to invest in a mutual fund scheme where the investor invests a certain amount of money at regular intervals for several years. In comparison, FD is a scheme where the investor invests a lump sum amount for a certain period.
SIP is comparatively better than FD for those looking to earn inflation-beat returns. Moreover, SIP investment offers flexibility as one can change the amount of SIP any time. Also, they can redeem the funds.
No, SIP is not 100% safe. It depends more on the type of mutual funds you want to invest in. For example, debt mutual funds are safer than equity mutual funds. However, consider your risk appetite and the investment horizon before investing.
Mutual funds are undoubtedly more profitable than fixed deposits but come with higher risks due to market fluctuations. FDs generally offer lower returns than mutual funds but are considered safer investments with guaranteed returns.
The taxes levied on returns from SIP investing in mutual funds depend on the type of mutual fund and the holding period. The gains from short-term investments are subject to STCG tax, and those from long-term investments are subject to LTCG.
