SIP Vs FD - Which Investment Option Outsmarts Others?

Apr 06, 2021 - 05:13 PMAuthor - Kenneth


The trade finance market has undergone massive changes as years have gone by. Various reliable, safe, and easy to use financial instruments have been introduced by combining the existing one for more convenience of customers. Be it the on-going trend of cryptocurrency or mutual funds or safe investment options like Fixed Deposits or government bonds, a plethora of options are available nowadays for traders and corporates across the world. Thanks to the variety of options, people who were interested in investing their money are now confused about getting the best option for investment.

There has been a common question among potential investors about the significant difference between Systematic Investment Plan (SIP) and Fixed Deposits (FDs). When it comes to choosing one of these two, it never fails to surprise people. If you are also one of them, in this article, we have tried to differentiate between the two. Let’s have a look:

What is a Systematic Investment Plan (SIP)?

1. A systematic Investment Plan or SIP is a type of investment in a mutual fund that allows people to deposit or invest a fixed sum regularly in the scheme of a mutual fund.
2. They can also be referred to as a goal-based investment where the investors can invest at their convenience making it one of the best investment options for new/beginner investors.
3. This helps you learn about timely investments and enables you to earn a large amount of money in a certain period as it offers great returns.
4. The investors can purchase many financial objectives such as buying a house, a vehicle or planning for higher education, and many more.       
5. It also allows investors to easily track the performance of their investments. Plus, if you invest in a SIP for more than a year, you can enjoy various tax benefits.
6. SIPs are related to investments in open-ended funds which means that you can withdraw and invest money at any time.

What is a Fixed Deposit (FD)?

1. A fixed deposit on the other hand is a financial instrument offered by banks or fixed deposit services where the investors can earn a pre-decided rate of interest on the lump sum amount deposited for the particular period in the FD account.
2. It is the safest option available for investment in the finance market as it offers higher returns on the investment made.
3. There are different types of fixed deposit options offered by various banks and FIs including foreign currency fixed deposit (FCFD) designed as per the various needs of investors for fulfilling short-term & long-term financial goals.
4. One of the best things about FDs is that you get assured returns on your investments. Plus, the investments in FDs are tax-free.
5. The investors can choose the locking period for depositing their capital and amount as per their requirements.
6. If due to an emergency, you withdraw your FD before the maturity date, the bank may impose a penalty.

Both of these investment options have several advantages and these below-given points will help you differentiate between the two. Let’s have a look:

1. Investment Type - An investor can start investing in any of these two investment options if we consider the investment type. In SIPs, it is you are allowed to make investments in installments while in FDs, a lump sum amount is required to be deposited.

2. Investment Amount - By comparing the rates that SIPs and FDs offer, it can be concluded that it is a wiser idea to start investing in SIPs rather than FD. SIP enables you to invest with a small amount with a possibility to earn higher returns.

3. Rate of Interest - Systematic investment plans offer higher rates of interest than fixed deposits to investors. Though, it comes with a greater risk while on the other hand, FDs offer higher returns to the investors.

4. Tenure - The amount in the FD can be deposited for both short & long term ie. It can be six months, one year, and can go up to 5 years. On the contrary, SIPs are generally a long-term investment plan for investors. They are generally associated with equity funds.

If you are willing to enjoy the convenience of flexibility in your investments with higher returns, systematic investment plans are a safer investment option for you.


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