FD vs SIP : which is better for investment in long term

The suitability of an investment option depends on the reasons why you invest and what you expect from the investment. There is no single investment plan that is always superior over the others. Hence you must choose the right investment options through a careful study of the options in front of you. Here we compare between FD (Fixed Deposit) and SIP (Systematic Investment Plan) to suggest which is better as a long term investment vehicle.

(FD) Fixed Deposit

Both banks and non-banking financial firms offer fixed deposit plans. Under this option, the investor puts in a fixed amount of money over a fixed period of time. FD is considered one of the safest investment option you will find in the market. It assures high returns on the invested amount. There are different kinds of fixed deposits to choose from. The rates of interest and the terms and conditions governing them vary from one plan to another. Fixed deposits can meet short term or long term goals and the best thing about them is the fixed return they assure the investor. The amount to be invested and the duration of the investment can be conveniently chosen by the investor. It is also possible to get a loan on your fixed deposit. Premature closing of the FD is also possible. Fixed deposits over 5 years provide various tax benefits to the investor.

(SIP) Systematic Investment Plan

A systematic investment plan lets the investor invest a fixed sum of money on a regular basis in a mutual funds scheme. Generally in an SIP scheme, the money is invested in an equity mutual fund scheme. If the investor is new to the concept of mutual funds, SIP is one of the best suited investment option. SIP creates the habit of making timely investments. SIP also lets you accumulate a lot of money over certain time period. SIP assures better returns than FD. Systematic investment plan offers several advantages. The investment can be customized as per the needs of the investor. The investor can also track the performance of the investment. SIP investment also carries various tax benefits. It is also possible to withdraw easily and invest money at any time the investor wants.

Taxes you will incur on long term capital gains

Long term capital gains refer to an investment that is made for a period more than year. The gains resulting from the amount invested in an equity based scheme for more than a year is called as long term capital gains. Long term capital gains is applicable only on mutual funds that feature more than 65% equity investments. Hence an investor will have to pay 10% tax on long term capital gains if the gains exceed more than one lakh per year.

Conclusion FD vs SIP

If you are a conservative investor wanting to avoid risks, FD is the right investment option. Fixed deposit also features a high degree of liquidity and guaranteed returns. SIP on the other hand does not guarantee the returns and the benefits can vary depending on the market performance. However, while talking of long term returns, an SIP is a better option if you are prepared to take the risk.