Should you choose SIPs over fixed deposits?
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Should you choose SIPs over fixed deposits?

  • Highlights

  • SIPs may offer higher rate of returns

  • FDs give you guaranteed returns

  • To claim tax, FDs & SIPs have a lock-in period

  • FDs and SIPs allow you start with a small amount

A Systematic Investment Plan or SIP allows you to invest a recurring amount every month based on your income. On the other hand, fixed deposits only allow lump sum contributions. So, the choice of a SIP over fixed deposits primarily depends on the money you have in hand. In order to make an informed decision, take a look at 4 other important factors that will help you choose one over the other.

Investment flexibility

Both SIPs and fixed deposits offer immense flexibility in terms of the amount that you can begin with. You can choose any amount of your choice in multiples of Rs.500 for SIPs and Rs.1,000 for fixed deposits.However, a small amount when invested in an SIP can give you high returns. With fixed deposits, this isn’t the case. What you earn is directly proportional to the amount you invest.

Also, you have complete freedom to choose an SIP variant based on your financial preferences and your risk appetite.On the other hand, fixed deposits come with two variations, non-cumulative and cumulative, which define the type of interest you get. You can withdraw your interest earnings on your deposit regularly on a monthly, quarterly, or yearly basis in case you opt for a non-cumulative FD or get your entire payout at maturity when you choose a cumulative FD.

Assurance of returns

Fixed deposits guarantee assured, risk-free returns and generally offer around7–8% as interest. However, you can choose NBFCs like Bajaj Finance to get a higher interest rate of up to 8.6% on your FD. On the other hand, SIPs deal in market-linked securities, so the risk factor is higher. However, when you choose the best SIP plans with trusted fund houses like Bajaj Finserv, then the risk is reducedowing to expert fund management. Additionally, your investment can fetch you a return of up to 22% when you choose SIPs.

5 reasons why you should invest in SIP

Choice of tenor

Whether you pick a small-cap or a large-cap SIP, the potential of gain in both cases are high. This is owing to the fact thatthe returns on SIPs are calculated through rupee cost averaging. This means the longer you stay invested with SIPs, the higher is your return. However, in case you are unsure, you can choose an SIP for just 6 months too. FDs allow you similar flexibility.If you want to claim tax benefits, then for both, staying invested for a minimum period is must. In case of FDs it is 5 years and for SIPs, backed by ELSS, it is 3 years.

Once you consider these factors, as well as your goals, you can easily decide to invest in one over the other. However, it is best to include both SIPs and FDs in your portfolio to fulfil different needs and create a balanced folio.

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