Systematic Investment Plan SIP or Fixed Deposit FD? This is apparently one of the constant battles for all of us to decide where to put our hard-earned money into. While Fixed Deposits implies low risk, investing in Mutual Funds carry high market risk. Looking at the other side of the coin, MFs have the potential to give higher returns and FD rates are fixed, unaffected from market conditions.

To simplify as to where should you invest your money, we bring to you a comprehensive, comparative study on SIP vs FD. Here’s a glimpse of what we shall be covering in this article:

  • What is SIP and FD?
  • SIP vs FD – Structure of each product
  • SIP vs FD – Comparative study on:
    1. Investment Type
    2. Returns
    3. Liquidity
    4. Risk factor
    5. Expense ratio
    6. Taxation
    7. Investment goal
    8. Suitability
  • Advantages and disadvantages of SIP and FD
  • Which is a better option?

What is SIP (Systematic Investment Plan)?

Systematic Investment Plan, mostly referred to as SIP is a Mutual Fund product that enables investors to make an investment in installments in instruments such as debt, equity or both.You can decide to invest a sum regularly like bi-weekly, monthly or quarterlythrough SIP.

What is FD (Fixed Deposit)?

Fixed Deposit (FD) is a type of investment in which you decide to invest a lump sum amount with a bank or financial institutions and earn a fixed amount of interest during the investment’s tenure that is until the specified maturity date.

Product Structure – SIP vs FD

SIP: If an investor opts for investment in Mutual Funds via SIP, he/she has to deposit a sum a regular intervals viz. bi-weekly, monthly or quarterly and the amount of investment can be as low as Rs. 500. Once you decide upon a pre-agreed fixed sum, it would be auto-debited from your savings account on a fixed date and credited to the mutual fund(s) you buy.

In recent times, equity mutual funds have generated good returns which have been in excess of recurring deposit or fixed deposit schemes. Reportedly, the returns generated by SIP mutual funds have been around 12% to 22% in the last 5 to 10 years.

FD: In a Fixed Deposit scheme, the individual has to first choose the lump sum amount he/she has to invest along with the tenure. FD is undoubtedly only of the great ways to increase your savings as they offer higher rate of interest than the savings account. They are also considered as one of the safest investment options as being independent of market fluctuations, returns on them are assured/fixed.


As SIP and FD significantly vary in terms of returns, risk involved, tax implications and liquidity, we bring to you a comparative SIP vs FD study on each of these aspects.

Key Factor SIP (Systematic Investment Plan) FD (Fixed Deposit)
Investment Type As a way to invest money in Mutual Funds, SIP means depositing a fixed amount on a periodic basis which can be daily, weekly, monthly or quarterly. A lump sum fixed amount for a certain tenure.
Returns Return on SIP via Mutual Funds is dependent on the debt and equity markets, as well as the fund scheme chosen With fixed rate of interest, the investor gets a fixed return – known at the time of investment
Liquidity Higher liquidity as SIPs can be closed and money withdrawn without any penalty, depending on the scheme Low liquidity – till the tenure expires
Risk Factor Low to high- As return on SIPs depend on the stock market, they are risky in terms of both capital and returns Low – FDs are not prone to risk as they are one of the safest forms of investment
Expense Ratio 0.50-3% including bank fee Zero
Taxation Investment and returns on SIPs are exempted from tax if the investor opts for Equity Linked Savings Scheme (ELSS) funds. Tax is levied on the interest earned from FD at the same rate as the investor’s gross income
Investment goal Whether short or long-term goal, SIPs can be taken for both short and long tenure. It is dependent on the scheme chosen, the frequency of investment, etc. FD serve long-term goal
Suitability Conservative and aggressive investors Conservative investors

Advantages and disadvantages of FD and SIP

Every investment avenue has its own set of pros and cons. Let’s have a look:

Advantages of Fixed Deposit:

  • FD is a completely safe means of investment with a pre-determined rate of interest. Money can grow at a steady rate without market fluctuations.
  • The duration is pre-determined – making it a fixed asset
  • Investor can avail tax benefits

Disadvantages of Fixed Deposit:

  • Low returns: As compared to other investment options, FDs give mediocre returns that are 6-8%.
  • Low liquidity: There is very less liquidity as one cannot withdraw the amount before maturity, and if withdrawn, penalty is charged by the bank
  • Taxation: FDs don’t help save a lot of tax as the returns received are taxable as per individual’s income tax slab

Advantages of SIP

  • SIP is a way to invest in mutual funds by allocating money in equity or debt
  • Returns are usually high, depending on the stock market
  • High liquidity as an individual can withdraw money at any time you want, depending on the scheme chosen
  • An individual can save a good amount of tax by investing in SIP

Disadvantages of SIP

  • There is a lot of risk involved in investing through SIPs as stock market is very volatile and returns can be yielded depending on the market fluctuations
  • It is best suitable for MF professionals

So which is a better option?

To conclude, the decision to invest in SIP or FD best depends on the risk capacity and investment goal of an individual. Keeping in mind their merits and demerits, it is up to you what you choose. If you are eying risk-free, steady investment to grow your money into wealth, FD is definitely a good option. However, if you are ready to take risk and are looking for exponential growth, SIP can serve your purpose of investment. Use this SIP Calculator tool to calculate your returns on investment for your specific time period