FD vs SIP: Risk, Return, Taxation and Inflation Analysis
Fixed Deposits guarantee capital safety with fixed yields, whereas SIPs harness stock market compounding to generate superior inflation-adjusted returns.
Key Financial Takeaways
- FDs are risk-free for sums up to ₹5 Lakh per bank under DICGC insurance.
- SIPs carry market risk in the short term but provide superior 12-14% returns over 7-10+ years.
- A balanced portfolio uses FDs for emergency funds and SIPs for retirement and child education.
Calculate FD Maturity
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Tax Comparison (Post Finance Act 2024)
FD interest is taxed every financial year at your slab rate. For a 30% tax bracket individual, a 7.5% FD provides only 5.25% in-hand return, which barely keeps pace with 6% inflation.
Equity SIPs, on the other hand, attract LTCG tax only upon redemption after 1 year at 12.5%, with the first ₹1.25 Lakh of profit each financial year completely tax-free.
Frequently Asked Questions
Can I lose money in SIP?
In the short term (1-3 years), market volatility can cause temporary negative returns. Over 7 to 10+ year periods, diversified Indian equity funds have never delivered negative returns historically.
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