Should you choose SIPs over fixed deposits?

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 7.85% 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.

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.

DISCLAIMER: The mentioned fixed deposit interest rates are indicative only, and may be subject to change periodically. Please check the interest rates on our website.