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FD vs SIP: Which is better?

The finance market of India has seen many changes in recent years. New financial tools have gained traction along with instruments that existed previously. Hence, there are many investment options, like FDs, mutual funds, stocks, and bonds. 


Having a variety of financial instruments at their disposal can sometimes confuse investors to decide the most suitable option for them. Read on to find the conclusion of the debate of FD or SIP, which is better and which one to choose between the two.

Difference between SIP and FD

While FDs and SIPs work toward the same goal of investing your money, they do so in very different ways. Here’s a comparison of SIP vs FD based on the various parameters.


Fixed Deposit

Systematic Investment Plan

Type of Investmet

In Lump-sum

In Instalments



Not Guaranteed

Return Nature


Dividends and Capital Gains

Risk factor







TDS of 10% on any interest above ₹40,000 for regular FDs  

15% tax deduction on Short-term Capital gains (STCG)

10% on Long-term Capital Gains (LTCG) of over ₹1 Lakh

Best suited for

Low-risk appetite Investors 

Low-risk appetite as well as high-risk appetite Investors

  1. Type of Investment:  While you have to invest continually with SIPs, you will need to deposit a lump sum amount for an FD. So, if you have a large corpus, you can go with FDs, otherwise, SIPs may be the best option for you.

  2. Returns: Since SIPs invest in market-linked instruments, the returns you stand to earn are higher. On the other hand, the returns of an FD depend on a predetermined rate that is revised periodically.

  3. Return Nature: With FDs, you get to earn interest on the principal amount that you deposit at the beginning. For SIPs, you get the returns in the form of dividends and capital gains earned on your holdings.

  4. Risk Factor: Since you can open FDs at a predetermined interest rate, it is considered a low-risk profile option. Alternatively, mutual funds are linked to the economic market, and are volatile.

  5. Liquidity: FDs are generally locked in for a predetermined tenor and hence, offer low or medium liquidity. You can withdraw investments made through SIPs in 2-3 working days. 

  6. Tax: On FD interest of above ₹40,000, you will be charged a TDS of 10%. On the other hand, LTCG of above ₹1 Lakh on mutual funds attract 10% taxation and 15% tax on STCG.

  7. Best Suited for: The risk factor may determine which investment option is better for you. If you have a high-risk appetite, you can go with investment through SIPs. On the other hand, if you prefer a conservative option, FDs are ideal.  



What is SIP?

SIP or Systematic Investment Plan is an approach that lets you invest in mutual funds in small amounts. These payments are recurring and can be made weekly, bi-weekly, or monthly. 


In other words, it allows you to invest in mutual funds through timely payments and gradually builds a large corpus. Since mutual funds are market-linked, they can provide you with higher returns as compared to traditional investment instruments.  

Benefits of a Systematic Investment Plan

Some of the benefits of investing through a SIP are:

  • Invest according to your requirements and needs

  • You need not act as the master investor

  • Option to keep track of the investment’s performance

  • Investments are made on a regular and timely basis

  • Enjoy tax deduction benefits on SIPs for more than a year

What is a Fixed Deposit?

fixed deposit is an savings tool that enables you to deposit a lump-sum amount in an account that earns interest on deposited money. Since the interest rate is pre-determined at the time of deposits, it is generally considered as a safer option.


Based on your financial capability, you can deposit an amount and tenor of your choice. At the end of the tenor, you receive the maturity account that includes the principal amount along with the interest income. 

Benefits of Fixed Deposit

Some of the benefits of fixed deposits are: 

  • Guaranteed and assured returns

  • They are comparatively risk-free

  • Flexibility to the investment amount and tenor

  • Eligibility for loan against FDs

  • Make an overdraft withdrawal during emergencies

  • Tax benefits on five-year tax-saving FDs

FD or SIP: Which is better?

Both options are a smart choice, in their own respect. However, they differ in certain ways and these features make them viable investment options for a particular audience.


For instance, if you wish to avail of a safer option, FDs may be the right choice for you as it offers guaranteed returns through interest payments. In case you have a higher risk appetite, SIPs may be a better option for you as they invest in mutual funds. 


You must take into account your financial goals before you invest. They must align their long and short-term objectives with their investments. Before investing in SIP, you must be aware of the risks. 


Those with a low-risk appetite can consider fixed deposits, and those who want to invest monthly and have a moderate-risk appetite can invest in a SIP. Having a proper plan helps you make a wise decision financially.


The information provided by BFDL herein above is related to the Non-Partnered Banks/ NBFCs and is just for the purpose of information and under no circumstances the information provided hereinabove is intended to be source of advice or recommending any financial investment advice or endorsement of any sort. 

The information including interest rates with regard to fixed deposit, provided on this website is gathered through publicly available sources over the internet and is considered as accurate and reliable to the best of our knowledge. BFDL disclaims any responsibility or liability regarding inaccuracies, omissions, mistakes etc. as well as offers by the Non-Partnered Banks. The use of information set out is entirely at the User’s own risk and User should exercise due care prior taking of any decision, on the basis of information mentioned hereinabove. You are advised to visit/ contact the respective Banks/ NBFCs to verify the information before making any investment or opening an account. Further, BFDL does not undertake any responsibility or liability to update this information. YOU ARE SOLELY RESPONSIBLE FOR ANY LIABILITY OR DAMAGE YOU INCUR THROUGH ACCESS TO OR USE OF THE SITE OR SUCH INFORMATION OR MATERIALS EXCEPT WHERE THE LAWS AND REGULATIONS OF A PARTICULAR JURISDICTION CONCERNING WARRANTIES CANNOT BE WAIVED. Additionally, display of any trademarks, tradenames, logo and other subject matters of intellectual property owners. Display of such Intellectual Property along with the related product information does not imply BFDL’s partnership with the owner of the Intellectual Property of such products. 

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Frequently Asked Questions on FD vs SIP: Which is Better?

When you opt for SIPs, you are investing in mutual funds, which are market-linked. As such, the risk associated with them may be higher than those with FDs.

If you invest in mutual funds via SIPs and earn over ₹1 Lakh after a year, the returns will be considered a long-term capital gain. These returns are completely tax-free.

The right investment choice for an investor depends on various factors. You will need to assess your risk appetite and financial goals. 


In addition, you must also look at parameters such as tax benefits, the flexibility of diversification, and maturity amount, among others that come with the investment.

Yes. You can choose to stop investing via the SIP mode at any time.

Investments made into mutual funds via the SIP mode can be withdrawn with ease, but exit charges may apply.

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