The world of financial markets have seen a massive change as years have gone by. New financial instruments have come into prominence along with the existing ones. Be it the latest trend of cryptocurrency or mutual funds or safe investments options like Fixed Deposits (FDs) and Government Bonds, the options available are a lot more nowadays as compared to the days gone by. However, given the variety of options, it is quite common for the people who are interested in investing their money to get confused as to which options serves them better. Though Bitcoin has been in the news of late, there has been a trend of potential investors in India looking up the difference between Systematic Investment Plan (SIP) and Time Deposits. Considering the options offered by both SIPs and FDs, it is never a surprise to find people muddled when it comes to choosing one among the two. Here, in this article we try to clearly differentiate between the two as well as highlight the benefits that each one of them offers to the potential investors.
What is Systematic Investment Plan (SIP)?
Systematic Investment Plan (SIP) is merely a mutual fund investment product that allows small investments on a monthly basis in equity and debt instruments. SIPs are the stepping stone for those who are new to the world of mutual funds. Apart from offering good returns, investing in SIPs can help in inculcating the habit of timely investments, which will ultimately result in the individual acquiring a hefty sum of money in a certain period of time.
Benefits offered by SIPs
Some of the core benefits that investors avail if they invest in SIPs are:
Investors can invest depending on their needs. Apart from that, one doesn’t need to roam about to make the investments and one is also provided with the facility of keeping a track on how the investments are doing.
SIPs do not require the investors to look after the interest rates as the investments are made on a timely basis.
Tax benefit is another plus offered by SIPs. Investors who invest in SIPs for more than year can enjoy tax benefits.
Money can be invested and withdrawn at any time as SIPs are done in open-ended funds.
What is a fixed deposit (FD)?
As for fixed deposit (FD), it is a financial instrument that allows investors to put in a lump sum amount for a specific period of time at a fixed rate of interest. It is the safest investment option available to potential investors in the financial market as it guarantees higher returns on the investment made. There are different kinds of FDs that are being offered by banks and non-banking financial companies so investors can go ahead and select the type that suits their needs be it short term or long term goals.
Benefits of investing in FDs
First and foremost benefit when it comes to FDs is that it assures of guaranteed returns on the investments
The investments are risk-free.
Offers flexibility to the investors as they can select the amount as well as the time period for which they want to invest.
Can avail loans based to the investments made in the FDs.
At the time of emergencies, FDs can be either closed or the investor can make a overdraft withdrawal.
You can apply for a car loan against your FD and also become eligible to apply for a credit card using your FD as a security. This is very useful for people who do not have a credit history or have just began earning.
There is no denying the fact that both SIPs and FDs have their own benefits and offers a lot to the investors who choose it. Though they look similar given the benefits that they have to offer, there are quite a lot of differences among the two. The below chart takes a look at the differences:
Systematic Investment Plan
Can’t be guaranteed
Nature of return
Capital gain and dividends
No tax is charged if the mutual fund units are sold after a year. However, 15% tax is charged if the units are sold within a year.
Tax is incurred on the basis of the income tax slab under which the investor falls.
Best suited for
Conservative as well as aggressive investors
Only conservative investors
Let’s take a closer look at the differences:
Investment amount: If we look at the investment type available to potential investors with regard to SIPs and FDs, it easy to start investing in both financial instruments. However, considering the rates that they offer, it is comparatively easier when it comes to SIPs as one can start with a small amount and yet have a chance to earn higher returns if the companies in which the investments have been made are doing well.
Interest rates: Considering the rates of interest offered in SIPs are higher as compared to that of FDs, it does not guarantee a potential investor of great returns. Hence, when one invests in SIPs, it is up to pure luck when it comes to guaranteed returns. While in the case of FDs, one who invests in it is sure to getting higher returns irrespective of the sum he/she has invested in the FD.
Taxes: When it comes to the important topic of tax saving, tax is levied on most FDs on the basis of the income tax slab that the investor falls under. Though, all the FDs charge taxes on the individuals, there is one type of FD called tax saving FD where the investors can claim deductions on investments upto Rs. 1.5 lakh. As in the case of SIPs, though no tax is charged if the mutual funds units are sold after a year, a certain percent of tax is levied on the investors.
Though, FDs are the safest option available to investors when it comes to investing the hard money without giving second thought, investing in mutual fund SIPs can also be beneficial if the decision to invest is taken after taking all risks into account. With the interest rates on FDs slashed by banks in recent times, both conservative and assertive investors can do prior research on investing in mutual fund SIPs which can result in higher returns on the investments made.
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I am doing Fixed Deposit with ICICI BANK and its been around 5years. They haven't been paying good interest and its more or less same like other banks as I used to hold my salary account with ICICI, I have decided to be with one bank. There is no locking period and its flexible. They do give good support and the app is user friendly. Even deposit account can be opened through i-mobile or net banking itself.
I had a Fixed Deposit in State Bank of India, I have completed the tenure before 3months ago. I have no issues with the customer service. They are given me 7% interest rate for 2years. There is no profit and processing fee. I got an online access, where I can check the interest rate anytime on the YONO app or else SBI online.
I have invested some money through FD. My salary account is in SBI so i have a zero ATM charges and the limit is not actually set by SBI. They do have short term FDs which is pretty good. I have invested the money of Rs. 60000 and the interest rate is 10.01% for the tenure period of 16 months. There is no lockin period. There is no hassle to getting the money back.
I have invested the money in Dena bank through Fixed deposit and the growth is not that much good. They are not taking any hidden charges. Only because of the Government undertaken bank, i have selected them. They are providing a interest rate of 6% per annum. I have invested the money of Rs. 2 lakhs. There is a lockin period of 1 year.
I have opt for fixed deposit for the tax saving purpose because I have chosen five years tenure with AXIS Bank, still its going on. Only once I Invested my money it has the locking period of five years. I have option to check my transactions through mobile app. But I have concern about the interest rate is very lesser for this FD.
I had fixed deposit with SBI then I withdrawn the amount, I done Rs. 3 lakhs of investment on my daughter name then I taken the liquidity to purchase the land, at the time I struggled a lot to take that money because the process was difficult to withdrawn the money after seven months of tenure.
I had a Fixed Deposit with Union Bank of India and its closed 18 to 19 months due to personal reasons. I am doing investment but my experience is not good with FD account. In my home town, there is no other banks so just decided to go with this bank. The returns are good.
I have one FD with HDFC, I deposited Rs. 1 lakh, I was opt for 45 days of tenure. Finally I got 6.25% of interest for 45 days. It won't cover the tax, if we need tax benefits we should go for five years term. I can track the details through netbanking, on the maturity date the amount credits automatically in the account. Even the notification can customized.
HSBC staff wrongly pre closed my fixed deposit .. and calculated the interest rates wrongly and when asked them for clarification never got back .. even after following up with them repeatedly for more than 3 months.. would highly recommend not using their services.
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A V kumar
Reviewed on Aug 24, 2019
I do have a Fixed deposit account with SBI and it was carried out by Mom and even I have account for my daughter. Its still running and they have Google application separately to access online. The returns are good. I am doing monthly investment and it was opened quite a long may be 4 years.
I just opened a Fixed Deposit with ICICI BANK and have not done any survey on this. I am account holder with them so it was easy to do FD account even they are providing 7% interest rate. The process is very user friendly and never faced any hassle. I could access this account via online.
In post office rate of interest is higher for the fixed deposit when compared to the bank, I invested Rs. 5000 on monthly basis its comes in a year Rs. 60,000 after 5 years I got Rs. 3.75,000 I got Rs. 75,000 extra. The service is not comfortable if we have any relative who working there it would supportive or else difficult.
I have FD with SBI, I have opt for one year term there is no such limitation for depositing the money. The interest rate is good for the FD, the online banking is convenient to take liquidity. They resolve the queries on time. Its most safe and secured.
I have selected state bnak of indis fixed deposit amount 1 lakhs , Tenure 5 years and Rate of interest 8 percentage after renewal fixed deposit 6 percentage is very less .while document directly bank . Customer service is not good and responsive.
I activated FD account with Kotak, I have been maintaining this account since when I opened saving account, I converted Rs. 5000 for one year. They are providing interest around 7.6% per annum, the online netbanking and mobile app is very convenient for deposit to FD.
I have invested my FD with ICICI BANK and also have a 3in1 account with them. The interest rate is pretty good. Recently started before 6months, I can do premature withdrawal and also have selected a locking period of 3 years. The customer service is good and overall am satisfied with this bank.
My Post office branch is located in own campus hence there is no queue. I opened the fixed deposit, I made one time investment for five years its has tax exemption. They are providing 7% of interest for per annum. I believe it has online access as well.
Chosen my fixed deposit from State bank of India. I have invested the money of Rs. 57000 and SBI is a most popular bank all over the India and offering all the facilities compared to bank. Since i have a salary account with them, its easy to transfer the money. They are providing the interest rate of 6.5%.
Union of India fixed deposit is same as other investment. Being an existing customer I have opt for one year of fd, the online banking feature is good to open and closing the account, they was no charges for the liquidity of fund before the maturity.
Chosen my fixed deposit from state bank of India because the given rate of interest is high. They are not deducting any service charges. I have invested the money of Rs. 1 lakhs and there is no lockin period and i have chosen the plan for 1 year and they are giving a interest rate of 6.75%.