How Does FD Work?
Fixed Deposits are bank products offering a guaranteed interest rate. They are best for short-term safety but carry reinvestment risk if rates fall.
How Does SIP Work?
SIPs let you invest small amounts in mutual funds regularly. This helps you benefit from rupee cost averaging and long-term compounding.
Key Differences Between SIP and FD
- Returns: FDs give fixed but low returns; SIPs can deliver higher but market-linked growth.
- Risk: FDs are virtually risk-free; SIPs carry market risk but reward patient investors.
- Liquidity: FDs often have penalties on premature withdrawals; SIP investments are more flexible.
- Taxation: FD interest is fully taxable; SIP equity gains after 1 year enjoy lower tax rates.
Which is Best in 2025?
If you are looking for stability and guaranteed income, FD suits. But if your goal is long-term wealth creation, SIP is the better choice. Smart investors use a mix of both.