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Systematic Investment Plan vs Fixed Deposit

India’s financial industry has been witnessing tremendous changes in recent years. Newly introduced financial instruments have quickly gained prominence along with those that already exist. Stocks, mutual funds, fixed deposits, government bonds - the investment options are plenty in the industry. Now, considering the plethora of options available, people sometimes get quite confused deciding which would be the best option that would meet their investment needs and fetch them the best returns. Lately, a lot of potential investors in India have shown interest in investing in mutual funds (MFs) via Systematic Investment Plan (SIP) and in fixed deposits. This article is aimed at helping people get a clear understanding of the difference between the two along with the benefits they stand to get in choosing either of the modes.

Difference between Systematic Investment Plan and Fixed Deposit

A Systematic Investment Plan or SIP is a means to invest money in mutual funds. Under this, individuals can invest a certain predetermined amount of money at regular intervals - weekly, monthly, quarterly, etc., as decided by the investor, in mutual fund schemes. The money will get auto-debited from the bank account on the selected date and directed towards the scheme that the individual has chosen.

SIPs are a preferred investment vehicle among most mutual fund investors in the country, given that it allows them to invest in a disciplined fashion, without having to worry over market volatility and timing the market. Experts recommend SIPs to first-time investors who are looking to invest in equity or equity-oriented funds. This allows the individual to spread his or her investments over time and park money during different market levels.

Fixed deposits are investment instruments provided by banks or NBFCs where a lump sum amount gets deposited for a specific period, ranging from 7 days to several years. The interest earned on fixed deposits are higher when compared with a savings account. Breaking a fixed deposit is not encouraged, but premature withdrawal may be allowed for a premature closure penalty. Fixed deposits are low-risk investments, with deposits up to Rs. 1 lakh insured under the Deposit Insurance & Credit Guarantee Scheme of India.

Returns in SIP

The returns will vary depending on the kind of mutual fund in which investments have been made in and their performance(s). On an average, one can expect a return of 10-18% from large cap mutual funds, while a return of 14-18% can be expected in case of mid-cap mutual funds. Short term debt mutual funds can deliver up to 7-8% returns, whereas a greater percentage can be expected in case of long-term debt-based mutual funds.

Returns in Fixed Deposit

The interest an individual can earn from his or her fixed deposit will depend on how much money has been invested and tenure chosen. An account that has a higher amount and held for a longer period will earn more interest income.

Name of BankFD Interest RatesSenior Citizen FD Rates
SBI5.25% - 6.25% 5.75% - 6.75%
HDFC3.50% - 6.75%4% - 7.25%
ICICI4% - 6.75%4.50% - 7.25%
Axis3.50% - 6.85% 3.50% - 7.35%
Kotak3.50% - 6.85% 4% - 7.35%
IDFC4% - 7.50%4.50% - 8%
Bank of Baroda4.25% - 6.55%4.75% - 7.05%
Citibank3.00% - 5.25%3.50% - 5.75%
IDBI4.25% - 6.75%4.25% - 7.25%
HDFC7.35% - 7.40% 7.60% - 7.65%
United Bank of India 4.00% - 6.10% 4.00% - 6.50%
Corporation Bank 4.50% - 6.70% 5.00% - 7.20%

Benefits of Investing in MFs through SIPs

Following are some of the benefits of investing in mutual funds via SIP route:

Investment convenience

A MF SIP, as its name would suggest, is systematic in nature - allowing the individual to take advantage of investing small sums of money regularly without any hassles. He or she can send a one-time instruction to the bank requesting auto debit of the investment amount to be made on particular dates from the savings bank account. This way, the individual would not have to worry about missing out on any investments.


To build wealth, financial advisors suggest investors to start investing early and regularly. The effect of compounding increases with longer investment tenure. A small sum invested on a regular basis can grow to a large amount, which not only includes the individual’s contribution, but also the returns compounded over the years.

Rupee cost averaging

Here, the need to time the market is eliminated. All that an individual has to do is park a fixed amount of money on a regular basis for a certain duration. Given that the amount invested is constant, the individual buys more units when the price is low and lesser when the price is high. This brings down the average cost per unit.

Benefits of Investing in Fixed Deposits

Following are some of the benefits of investing in fixed deposits:

Assured returns

Unlike investments in the stock market, fixed deposits are not a risky investment since they do not depend on fluctuating market rates. Even if the market may not be performing well, one can be assured that their fixed deposit won’t be affected. Investors can be certain that their investments are secure and that they will be getting back the guaranteed amount by the end of the tenure.

Loan against fixed deposits

A fixed deposit can be a useful tool in helping one avail a loan from bank. The lending institutions normally offer loan up to 90% of the value of fixed deposit. However, the exact percentage may differ from one bank to another. The individual can keep earning interest on the deposit even if he or she has availed a loan against the fixed deposit. It must be noted that the loan tenure cannot be more than the period of the deposit.

Tax benefits

Investing in tax-saving fixed deposits will allow one to claim tax deductions under Section 80C of the Income Tax Act, 1961. The maximum deduction that can be claimed under this section for investments in tax-saver fixed deposits is Rs.1.5 lakhs in a financial year. Such deposits, however, come with a lock-in period of five years.

FAQs on Systematic Investment Plan vs Fixed Deposit

Do we get interest on mutual funds?

Some kinds of mutual funds pay interest, sometimes in the form of dividends. Bond funds, balanced funds and money market funds pay interest on account of the coupon-bearing debt securities where those funds invest in.

How do mutual funds pay?

Income is earned in the form of dividends in case of stocks and interest on bonds held in the fund’s portfolio. Should the fund sell securities, whose prices have increased, the fund is said to have a capital gain. Most funds pass on such gains to the investors either in the form of dividends or rise in the net asset value of the mutual fund.

How is SIP beneficial?

A SIP allows the investor to take advantage of investing small sums of money regularly without any hassles. A small sum invested on a regular basis can grow to a large amount, which not only includes the individual’s contribution, but also the returns compounded over the years. Additionally, the investor can take advantage of the rupee cost averaging feature. Given that the amount invested stays constant, the individual buys more units when the price is low and lesser when the price rises. This reduces the average cost per unit.

Is FD a good investment?

A fixed deposit is a suitable investment option for conservative investors who do not want to take on any risk.

Is FD better than mutual fund?

Fixed deposits and mutual funds function quite differently. FD rates are pre-specified and remain the same for the entire tenure, while MF NAV are impacted by market conditions. Investors with a low risk appetite can consider going for debt mutual funds or fixed deposits, whereas those willing to take high risk to earn high returns can go for equity mutual funds.

Is it a good idea to invest in MFs through SIP?

MF SIPs can help develop a disciplined savings habit. Additionally, they allow one to make the most of compounding and are ideal for new investors. Choosing this route can make it much easier for equity investors to ride through the ups and downs of the market.

Is MF SIP better than FD?

Investments in mutual funds (via SIPs) and fixed deposits have their own pros and cons. Those who are willing to take on higher risk can consider going for mutual funds, while investors who want fixed returns, without taking part in the markets, can consider going for fixed deposits.

Is SIP safe?

SIP is a method of investing money in mutual funds. Given that the schemes are market-linked, there is an element of risk involved. However, the investor can choose the degree of risk he or she would like to take on - equity for those seeking high risk-high returns and debt for those seeking low risk-stable returns.

What is a zero-balance bank account?

As its name would suggest, a zero-balance bank account is a one where the user does not have to maintain any minimum Monthly Average Balance (MAB). No penalties will apply in case of zero balance.

What is debt mutual fund in India?

A debt fund is a type of mutual fund that invests in fixed income instruments like corporate debt securities, government bonds, etc.

What is equity and debt fund?

An equity fund, also referred to as a stock fund, is one where the investor's money is parked primarily in stocks. On the other hand, in a debt fund, the individual's money is put into fixed income securities like treasury bills and bonds.

What is mutual fund deposit?

A mutual fund is a professionally-managed investment fund that pool investors' money with the intent of investing in securities, like stocks, bonds, money market instruments and other assets.

What is the interest rate on a mutual fund?

The interest rate on a mutual fund (debt fund) will vary from one to another, depending on the kind of scheme where investments have been made.

What kind of investment gives the best return?

Unit linked insurance plans, mutual funds, fixed deposits, etc. are all suitable investment options that one can consider parking their money in. ULIPs are increasing becoming a preferred option among investors on account of its dual benefit of insurance and investment.

Which bank gives highest interest rate in India?

According to the Economic Times Intelligence Group (ETIG) Data, as on 31 January, 2019, IDFC Bank's fixed deposit interest rate for a 5-year tenure stood at 8.25% (compounded quarterly).

Which bank is best for savings account?

Kotak Mahindra Bank, Axis Bank, State Bank of India, HDFC Bank and ICICI Bank, are some of the suitable options for opening a savings account.

Which bank is best for zero balance account?

Kotak Mahindra Zero Balance Account, Axis Bank Zero Balance ASAP Account and SBI Zero Balance Account are some of the suitable options for opening a zero-balance account.

Which bank is best?

State Bank of India, HDFC Bank, ICICI Bank, Punjab National Bank and Axis Bank are some of the leading banks in India.

Which bank is good for recurring deposit?

ICICI Bank, Axis Bank and HDFC Bank are some of the banks offering competitive recurring deposit schemes.