SIP Vs FD – which one to choose in 2022?

SIP Vs FD – which one to choose in 2022?


The COVID-19 pandemic made people remember that the income earned from full-time employment might not be enough. Asan answer, some people turned to investments as a way to earn extra income. Investment, in simple terms, is the act of allocating funds into schemes. The schemes here mean investment plans that will help you to accumulate wealth. But it is important to remember that investments are not a monolith and in fact, there are two types of investments namely, lump-sum investments and systematic investment plans (SIP).

What are lump-sum investments?

Lump-sum investment is the action of depositing the entire amount in one go. If were to you invest the entire amount available to you in mutual funds, it is called the lump-sum mutual fund investment. It is a common mode of investment forbig-ticket investors and high net-worth individuals. It is one of the ways of investing in the long term. Someone who has a high-risk tolerance may consider investing a lump sum amount in a mutual fund scheme. Apart from that, you may consider lump-sum investment for a windfall such as an inheritance, bonus, or gift. If you can get the market timing right, you may profit from the lump-sum investment. It is an ideal investment for the long run and is not suitable for short-term investment. While investing, you must do so based things like on your investment goals, risk appetite, and time horizon. In case you are not confident with handling large amounts of money, you may opt for a systematic investment plan or SIP. Investing a lump sum amount of money depends on the need for funds. Failure to plan for liquidity could mean liquidating assets at a loss. If you are someone who does not enjoy a monthly income, lump-sum investments are a good option. One of the common examples of this type of investment is fixed deposits or FDs as they are referred to.

What are FDs?

A fixed deposit is a financial instrument which is offered by both non-banking financial companies and commonly banks. An investor puts a lump-sum amount at a fixed interest rate for a fixed period. They are regarded as one of the safest investment options available in the market as they assure higher returns on the investment made by the investor. Banks and non-banking financial companies offer different kinds of fixed deposits according to the need of investors for meeting short term goals and long-term goals. FDs also have various benefits. The best thing about these instruments is that you get assured returns on your investment. They provide flexibility as investors can choose the time and amount according to their requirements. You can get a loan depending on the investment you made in fixed deposits. Whenever an emergency occurs, an investor can easily get the FD closed and can withdraw the amount with the help of an overdraft.

What are SIPs?

A systematic investment plan (SIP) enables you to invest small amounts of money regularly. The sum is further invested in your preferred mutual fund scheme. Thus, it helps to diversify your risk over time and enables people who don’t have a lump sum of money to start investing. After activating a SIP, the bank deducts a fixed amount every month for the tenure of the investment. With each SIP deposit, you get a certain unit of the mutual fund. It is possible to choose a mutual fund scheme based on your risk appetite and requirement. NAVs of mutual funds update daily so the purchase cost may vary and the same will reflect on your units.

How can FDs and SIPs be differentiated?

The table below will point out how SIPs and FDs can be differentiated:

Parameters Fixed deposit Systematic investment plan
Best investment option for They are suitable for conservative investors Suited for aggressive as well as conservative investors
Type of investment Investments could be made only in lump-sum Investments are made in instalments
Liquidity They are highly liquid A SIP may not be that liquid
Risk factor They are not that risky They come with high risks
Returns FDs offer guaranteed returns Returns here can’t be guaranteed
Nature of returns Returns here are earned in the form of interests Returns here are in the form of capital gains and dividends

Both SIP and fixed deposits are good investment options available in the Indian market. However, with SIPs, you accumulate wealth for future expenses, because of which they are a more prudent investment choice.

Mutual Fund Investments are subject to market risks, read all scheme related documents carefully.


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