4 Steps To Decide Between Mutual Fund SIP’s And Fixed Deposits

When it comes to saving money, people often opt for Fixed Deposits, considering them to be risk free. With FDs you are highly unlikely to lose your money. But is it really going to grow your money?

In the current scenario what is a better investment idea, investing in Fixed Deposits  or investing in Mutual Funds through Systematic Investment Plan (SIP)? Let’s find out:

STEP 1: Figure out what you want:

Gonna get it

You wouldn’t check footwear brands if you want to buy clothes right! Similarly you can’t pick an FD if you want to invest in SIP Mutual Fund, here’s why:

Fixed deposits are financial products that give you regular and fixed interests.  They are given by banks, NBFCs (Non Banking Finance Corporation), Post Offices or Companies and they offer a higher rate of interest than a regular savings account. But the returns don’t beat inflation. The good thing about FDs are that they are safe, they provide fixed interest regularly and they are relatively easy to open.

But FDs are used as a savings tool, which means the money is safe and secure but the growth will be muted.

STEP  2: Instead of FD’s find a smarter but reasonable alternative:


Let’s say you want diamonds but that doesn’t mean you’re going to get the Kohinoor!

Similarly a beginner investor can’t directly jump to buy the most complicated financial product like futures, derivatives or cryptocurrencies. You need to take baby steps. SIP’s offered by Mutual Funds are the baby steps towards investing, here’s how:

An SIP is a smart and hassle free mode of investing money in mutual funds on a regular basis (weekly, monthly or quarterly) instead of investing on a lump sum basis . An amount as small as Rs. 500 can be invested through SIPs . The money is then managed by professionals who invest it in debt, equity or commodities like gold. That’s why even if you’re clueless about investing you can be assured that your money will be managed well through these SIPs.

STEP 3: Figure out how they work:


You wouldn’t go to a tailor for all your clothes instead you’d buy readymade outfits right?

Similarly SIP’s are ready made investment options for you to choose from. Here’s how they work:

A SIP is a flexible and easy investment plan. A pre-determined amount is auto debited (i.e. automatically taken from your bank account) and invested into a specific mutual fund scheme. When money gets deducted from your account units of the scheme are purchased based on the ongoing market rate called NAV (Net Asset Value) for the day and added to your SIP account.  

For e.g. You decide to invest Rs. 5000 every month into SIP’s. In few months the price of units would be Rs. 10, few months it could fall to Rs. 9 and few months it could rise to Rs. 11. Depending on the price every month you could get more units or less units giving you the benefit of averaging.

STEP 4: Deciding your pick:


Depending on your need, income, risk and returns you can choose between SIP’s and Fixed Deposits. We’ve summarized it for you in this table:


Image Terms Explained:

  • Lumpsum: Paid all at once.
  • In installments: Paid after intervals could be weekly, monthly, quarterly or yearly.
  • Capital Gains: If your mutual fund units increase in value, the profit you make by selling them are called capital gains.
  • Debt Fund:  Debt Mutual Funds mainly invest in fixed income securities such as Treasury Bills, Government Securities, Corporate Bonds, Money Market instruments and other debt securities that have a fixed maturity date & pay a fixed rate of interest.
  • Equity Fund: A mutual fund scheme that invests only in stocks.
  • LTCG Tax Benefits: Any capital gain for units held for more than 12 months is considered as a long-term capital gain and you don’t have to pay any tax on this. Similarly, any dividends or distributed income from equity funds will also not be taxed.
  • Rupee cost averaging: An approach where you invest a fixed amount of money at regular intervals ensuring that you can buy more units of a mutual fund when prices are low and less when they are high.
  • Indexation: Taking into account the effect of inflation on your investments

During positive market conditions, MFs can earn high returns whereas FD rates are unaffected. Concerning risk, equity MF carry high market risk whereas FDs are almost risk free. MFs are professionally managed, who do their best to protect investors’ investments and also help them grow it. Meanwhile FDs have a fixed period and little liquidity. There is a price that you pay for certainty hence FD will always give lower returns than SIP Equity in Long Term. SIPs have proved to be an ideal mode of investment for retail investor who do not have the resources to pursue active investments.

In the end the decision to invest between a FD and MF SIP is based on the risk capacity of the individual.


Any questions for Tanvi, comment and let us know.

Managed by MissManage Editorial

Written by Tanvi Parikh

Tanvi Parikh is an Investment Management graduate who has been managing finances for her friends and family for the past 7 years.

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