Difference in FD(Fixed Deposit) and SIP (Systematic Investment Plan)
Difference in FD and SIP
- What is the difference between FD and SIP and
- which of the two investments is better?
If you are also not able to decide which of the Fixed Deposit or SIP to take and which to invest in, here is an easy explain salient features.
what is the difference between FD and SIP?
which investor should invest in which of these schemes?
Both of them are excellent sources of investment available in the Indian market but have different investment methods, risks, liquidity and returns and income.
What is SIP?
A certain amount in SIP i.e. Systematic Investment Plan is regularly invested in a mutual fund scheme. It can also be called a systematic investment plan. Generally, the amount is invested in an equity mutual fund scheme. If you are planning to invest in mutual funds for the first time, SIP is the best option for you. Investing in mutual funds through systematic investment plans has many advantages. Read here how to make Rs 1 crore by investing in SIP.
Benefits of SIP
Investing in SIP investment schemes teaches you to invest with discipline. You can deposit a large amount by investing in SIP for a certain period of time. There is a risk involved in investing in SIP or mutual funds. But high returns can also be expected. Investment swells easily by investors.
If you invest in SIP for more than a year, you can also get various tax benefits. You invest in open ended funds through SIP. This means that you can easily invest or withdraw money at any time.
What is Fixed Deposit?
Fixed deposits can be made in non-banking financial companies, post offices and banks. A certain amount is invested by the investor for a certain period of time. Fixed Deposit is a good option for you if you want to invest in a place that is safe and assures high returns. Various term deposits are offered by non-banking financial companies and banks as per short term requirements and long term requirements of the investor.
Benefits of Fixed Deposits
Investmentin fixed deposits has many advantages such as assured high returns and secure investment options. Investors can easily select the time period and amount as per the requirement. This is how Fixed Deposit provide flexibility to investors. The investor can easily close a fixed deposit or withdraw the amount from a fixed deposit in case of an emergency. If an investor invests in tax saving fixed deposits for 5 years, he gets the benefit of tax saving.
FD & SIP
- Return fixed and guaranteed returns are no guarantees, depending on stock market returns
- Method of Investment Lump Sum Fixed Amount Every Month
- Closure can be done anytime at the end of the period
- Tax benefits of 80C on 5-year FD 80C on ELSS
Now, we understand the difference between the two investments and see which investor should invest in which scheme.
Returns on FD and SIP
The rate of interest in FD is predetermined whereas the return in SIP depends on the return in the stock market and is not predetermined. It is more likely that if invested in the long term, the SIP will get higher returns than the FD but the return is not guaranteed in the SIP.
Investment Method
A lump sum amount is invested only once in the FD which is for a fixed period whereas a predetermined amount is invested in the SIP per month. ₹500 per month can also be deposited for SIP.
liquidity
At any time, the SIP can be closed and the funds lying in it can be withdrawn. Fixed deposits are for a fixed period and you get principal with interest when it expires. You can close your fixed deposit even before the expiry of the period, but you may have to pay some fee for it. 5 years of tax saving fixed deposits cannot be closed prematurely.
Tax
If you sell the investment in mutual funds before a year, you may have to pay short term capital gains tax. TDS is no longer deducted on interest up to ₹40,000 in a year on FD. Investing in tax saving fixed deposits for 5 years also yields a tax benefit of 80 C. If you get SIP in ELSS, you get 80 C benefit.
Where to invest in FD or SIP?
Investors who have family responsibilities and have low sources of income or retired and do not want to take any risk in their investment and want a guaranteed return should think about fixed deposits. On the contrary, investors who are young, want to take risks, keep investing for a long period of time and want to invest a little bit out of their monthly income can invest in SIP.
If you want to achieve a financial goal in the long term and add a certain amount every month, SIP is a better option for you.
Hi , This is Pramod Choudhary from Nagaur Rajasthan India. I an student and I would like to share my positive thinking with everyone that's my passion . Thank you
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