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.
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.
Some of the core benefits that investors avail if they invest in SIPs are:
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.
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:
|Parameters||Systematic Investment Plan||Fixed Deposit|
|Investment type||In installments||In Lump-sum|
|Returns||Can’t be guaranteed||Guaranteed|
|Nature of return||Capital gain and dividends||Interest|
|Tax||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:
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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