Tuesday, March 21, 2023

Is it a good option to choose SIP over fixed deposits?

fixed deposits

What do you mean by an SIP? An SIP is a Systematic Investment Plan that permits you to make investments of recurring amounts every month based on your income. In case of an FD, it only allows you to make lump sum contribution. 

This means that the decision between the SIP and Fixed deposits is based on the amount of money you hold. In this article, we will tell you the factors that help you to determine which option is better for you. Read the article to make the right decision between SIPs and FD. 


Here are the key factors that explain the difference between the SIP and FD and tell you which investment tool is better for you. 

  • Investment amount

The SIP investment in mutual funds is considered a pocket-friendly option. You can begin investing in mutual funds via SIP. It also provides the flexibility to change the investment amount and plan the tenure according to it. However, the auto-debit frequency is fixed in SIP according to your convenience. On the other hand, the FD needs a lump sum investment depending upon the institution.

  • Returns and risk

The FD investment is considered less risky as it offers fixed interest payouts at specific intervals. On the other hand, the SIP poses higher risk as they are impacted by the movements in the market. The best thing is that the SIP can provide you with a good amount of returns on your investment. In addition, SIP allows you to enter diversification across the different types of mutual funds investment, which spreads the risk factor. 

  • Liquidity

Fixed deposits come with a lock-in period and provide little liquidity. However, many financial institutions pose a penalty for premature termination of FD. On the other hand, the SIP is an investment option that provides high liquidity as it is an open-ended tool. In this way, you can redeem your holdings at any time. 

  • Tax implications 

 If the deposit tenure is shorter than five years, the tax on FDs is applied at the individual’s current income tax level. It is not necessary to pay capital gains tax if the SIP in equity mutual fund units is sold within a year of acquisition. You can also use the SIP calculator to calculate the tax imposed on it. 

  • Tenure

The people have the flexibility to choose their FD term. You can easily open the FD deposit and choose a tenure starting from 7 days to 10 years. SIP allows you to earn good returns because the investment horizon is for the long term. It helps you in wealth accumulation and makes the corpus via composting factor. 


The SIP and FD are good investment options for people who want to earn returns and wealth on their investments. In addition, FDs are good for risk-averse investors whereas SIPs are good investment options for those who are ready to face the risks. 

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