SIP vs FD: which should you choose?
Rules for FY 2026-27 · Checked 24 October 2026
For goals 5 or more years away, an equity SIP has historically grown money much faster than an FD, though with ups and downs. For money you need within 3 years, or an emergency fund, an FD is safer. Many people use both.
SIP and FD compared
| Equity mutual fund SIP | Bank fixed deposit | |
|---|---|---|
| Returns | Not fixed. Long-term averages of 10–14% a year, with bad years along the way | Fixed when you deposit, typically 6–7.5% at present |
| Risk | Value can fall, especially in the short term | Very low. Insured up to ₹5 lakh per bank |
| Tax | 12.5% on long-term gains above ₹1.25 lakh a year, only when you sell | Interest taxed every year at your slab rate |
| Getting your money | Usually within 2–3 working days | Anytime, with a small penalty if early |
| Best for | Goals 5+ years away | Goals within 3 years, emergency fund |
₹5,000 a month for 20 years
| SIP at 12% | FD-like 7% | |
|---|---|---|
| Invested | ₹12 lakh | ₹12 lakh |
| Value before tax | ₹49.96 lakh | ₹26.2 lakh |
| Value after tax (30% slab) | about ₹45.4 lakh | about ₹20.2 lakh |
The SIP’s tax assumes everything is sold in one year; selling in stages over several years uses the ₹1.25 lakh yearly exemption more than once. The FD’s interest is taxed every year, so less of it compounds, which is why its after-tax value falls so much.
The 12% is an assumption, not a promise. Equity funds have had years of −20% and years of +40%. The longer you stay invested, the more those years even out.
Try different returns
A simple way to use both
- Keep 6 months of expenses in an FD or savings account as an emergency fund.
- Put money for goals within 3 years (a car, a wedding) in FDs or debt funds.
- Put money for goals 5+ years away (retirement, children’s education) in equity SIPs.
Frequently asked questions
Is SIP safe?
A SIP is just a way of investing monthly. Its safety depends on the fund. Equity funds can lose value in the short term; debt and liquid funds are steadier.
Can I lose money in a SIP?
Yes, over short periods. Over 10+ years, diversified equity funds in India have rarely given negative returns, but past returns do not guarantee future ones.
Are FD returns guaranteed?
Yes, the rate is fixed for the term. Deposits are insured up to ₹5 lakh per person per bank by DICGC.