SIP vs FD: Which is better?

SIP vs FD: Which is better? -Choosing the right investment is very important for financial security. Most Indians prefer FDs (Fixed Deposits) when it comes to investments. However, in recent times there has been a growing interest in SIP (Systematic Investment Plan) among people. So, which of these two schemes is better? What’s more rewarding about growing your savings?

What is SIP?

SIP stands for Systematic Investment Plan. It is a systematic approach of investing in mutual funds. A fixed amount can be invested in this scheme every month. For example, if you invest ₹1000 per month in SIP, that amount will be invested in mutual funds on a fixed date.

Since SIPs are based on mutual funds, they are also affected by the rise or fall of the market. But many studies suggest that SIPs give better returns in the long run.

How to start investing with a small amount?

What is FD?

FD stands for Fixed Deposit. It is a scheme offered by banks or non-banking financial companies (NBFCs). In which you keep a large amount in the bank for a certain period of time. You will get fixed interest on that amount. For example, if you put ₹1,00,000 as an FD for 5 years, you can earn 6–7% interest every year.

SIP vs FD – Key Differences

Item	SIP	FD
Investment policy	A little per month	A large amount at once
Returns	Varies (market dependent)	is stable
Risk	Existence (market risk)	Low risk
Liquidity	good (understood by necessity)	Difficult to recover earlier (penalty applies)
Tax benefits	Tax benefit through ELSS	Tax benefit on 5 years FD
Long term profit	More likely	Low returns

Advantages of SIP:

Cost averaging Rs: By investing in SIP once a month, you buy units at an average price depending on when the market is high and when it is low.
You can start with small amounts: SIPs can be started with ₹500 or even ₹1000. It is very useful for middle class families.
Long term growth: SIPs give good returns in 5–10 years tenure. This is possible due to market growth.
Tax benefits: A deduction of up to ₹1.5 lakh can be availed under 80C on ELSS (Equity Linked Savings Scheme) SIPs.
Mental stability: Automatic investment once a month without having to think about when to put in the market can reduce your mental stress.

Advantages of FD:

The returns are constant: No matter how much the market fluctuates, your interest income will not be affected.
The risk is low: FDs have deposit insurance (up to ₹5 lakh), making the deposit risk less.
Correct for word usage: If you need money after a certain deadline, FD can be a good option.
Full security: With FDs offered by banks or recognized NBFCs, the investment is considered completely safe.

SIP or FD – Who Should Choose Which?

1. Those with large amount of money: If you have a large amount of money, you can get fixed monthly income by putting it in FD.

2. Those who want to start with small amounts: SIP is the best option if you want to save a little per month. In the long run it adds up to a large amount.

3. For Pension, Retirement Planning: SIPs are likely to generate higher returns. So SIPs are better as a long term investment for retirement.

4. For Youngsters: Youngsters put a portion of their income in SIP to create a larger corpus in the future due to compound interest.

5. To avoid penalties: Liquidity is high in SIPs. Premature withdrawal of FDs incurs losses.

A meaningful mixed investment approach

It is worth noting: Both SIP and FD are good investment instruments in their own right. A good financial plan can combine both SIPs and FDs. For example:

If saving target is for 1–3 years: FD can be chosen.
If saving target is for 5+ years: SIP is better.

“SIP vs FD – Which is better?” There is no single answer to the question. It totally depends on the investor’s needs, goals, time frame and risk tolerance.

SIP is better if you are a risk taker with long term goals. FD is suitable if you prioritize security. But a balanced combination of both is much better.

If you are clear about your financial goals, any tool can be used correctly to achieve success.