SIP vs FD Which is the best option for you

  • Deposit
  • 1 Months ago

Written by - Shriram

A Systematic Investment Plan (SIP) is a method of investing in mutual funds where people can deposit small sums at regular intervals. On the other hand, a Fixed Deposit (FD) is an investment option where people can deposit a certain amount for a fixed term and get back the amount with interest upon maturity. 

A Shriram FD enables you to invest in a secure account, offering one of the highest interest rates. It also provides an additional 0.50% interest rate for senior citizens.

If you find it difficult to choose between an FD and a SIP, understanding the difference can help you make the best decision. It is natural for everyone to get confused, considering that a wide variety of investment options are available. Let us look at the differences between an FD and a SIP to better their services.

What is an FD?

A fixed deposit or FD is an investment avenue that allows people to put in a lump sum amount for a fixed term. Banks and Non-Banking Financial Companies (NBFCs) offer this service. In this sort of investment, you can't break the FD during its tenure. If you wish to do so, you must pay some charges to the bank/NBFC. Upon completion of the FD's tenure, the entire amount invested, plus interest will get deposited into the person's account.

There are various types of FDs offered by NBFCs and banks. You can choose the kind of fixed deposit based on their needs, which can be short-term or long-term goals.

What is a SIP?

A Systematic Investment Plan (SIP) is an investment mode which allows people to deposit small amounts of money every month. SIPs might serve as a stepping stone for amateurs with mutual funds. SIPs can be viewed as goal-oriented investments. People can choose to invest at their convenience. Through SIP, people can plan for future goals and achieve objectives like purchasing a house or vehicle, planning for higher education, etc. people can start their SIP investment with an amount as low as Rs. 500.

Benefits Offered by FDs

  • The primary benefit you can get with an FD is that it assures guaranteed investment returns.
  • A fixed deposit investment is risk-free.
  • It offers flexibility to the people investing as they can select the amount and period they want to support.
  • You can avail of loans based on the amount and term of the fixed deposit.
  • FDs can be closed in an emergency, or the investors can make an overdraft withdrawal.
  • Additionally, you can apply for a car loan against your FD and become eligible to apply for a credit card using your FD as security. This facility can benefit people who do not have a credit history or have just started earning.
  •  You can also get tax benefits if you invest in five-year tax-saving FDs.

 

 Benefits Offered by SIPs

  •  People can make investments depending on their needs. It is simple to make a SIP, and a bonus feature is that you can track how the assets are doing at your convenience.
  •  SIPs eliminate the need for investors to monitor interest rates because you can make investments regularly.
  •  Tax benefits are another great benefit offered by SIPs. People who invest in SIPs for more than a year can enjoy tax benefits.
  •  Unlike FDs, money can be invested and withdrawn at any time as SIPs are in open-ended funds.

 

Which one to choose:

SIPs and FDs have their benefits and offer a lot to those looking to invest. Though the benefits look similar, there are quite a lot of differences between the two. Let us take a closer look at the what makes them different and which option you should choose:

Investment amount:

Looking at the investment type available concerning an FD and SIP, it is easy to start investing in both options. SIP has an added benefit where people can start investing even with small amounts. The SIP investment frequency can also be set monthly or quarterly to suit a person's needs. On the other hand, an FD allows a person to invest a lump sum. In this way, they don't have to bother reinvesting after a while.

Interest rates: 

The rate of interest offered in SIPs is higher than that of FDs, but it does not guarantee the best returns. It would be best if you considered the risk related to the returns. While in the case of a fixed deposit, a person who invests is sure to get higher returns irrespective of the sum they have invested in the FD. You can check the Shriram interest rate chart to know how much you can get according to the deposit of your choice.

Taxes: 

Tax saving is an essential topic for everyone. Most FDs are taxed based on the income tax bracket of the person investing. There is a type of FD called tax saving FD, through which a person can claim deductions on specific investments. In the case of some SIPs, only a certain percentage of the tax will be levied on the person investing.

Conclusion:

Though FDs are the safest option for people who want to invest, when putting their hard-earned money to work without a second thought, mutual fund SIPs can also be helpful. After all the risks have been understood and considered, you can undertake the investment into a SIP. With Shriram fixed deposit, you can get assured returns and higher interest rates. You can check the specific interest rate you can get for a deposit of your choice using the Shriram FD calculator.