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Should you invest in Mutual Funds SIPs or FDs?

3 Mins 21 Jun 2022 0 COMMENT


Investment decisions have to be prudent. You need to consider the timeline for investment, your investment goal, the risks and returns of the financial product, and the capital you have for investing.

Once upon a time, fixed deposits were the only investment option for the average Joe. This is because people didn’t know about the different options available. Mutual funds were considered too risky to take a bet on. As markets have evolved and investors like you and me are becoming more informed, the sheen on mutual funds has grown.

Young investors are choosing mutual funds Systematic Investment Plans (SIP) to grow their corpus. A SIP is a regular investment made in a mutual fund of your choice. It is easy to invest in, aims to provide higher returns than bank deposits and is managed by a professional. However, SIP mutual funds are investments in the market. This means that these are subject to market volatility. Risk in mutual funds, especially equity mutual funds, is higher than in fixed income securities.

Fixed deposits (FDs), on the other hand, are tried and tested investment avenues. Our grandfathers and fathers swear by the stability and assured returns of FDs. Yet, in today’s time of rising inflation, FDs do not provide returns that beat inflation. Many times, their real returns are negative. This could be a low-risk option, but such investments may not meet your long-term wealth generation goals.

Additional read: What is an SIP and Why is it Beneficial for You

Difference between mutual fund SIPs and FDs

Before getting into which product you must invest in, you first need to understand the

differences between SIPs and FDs.


Fixed Deposit

Mutual Fund Systematic Investment Plan

What is it

A deposit with a bank that provides fixed returns over a specific period

Regular investment in mutual funds that may invest in diverse avenues, including stocks, bonds, government securities, gold, etc.

Ideal investor

Suitable for conservative and
low-risk investors

Conservative as well as aggressive investors; Depends on the kind of fund that you choose

Type of investment

In lump-sum

In regular instalments


High, if premature redemption is allowed

High but redemption at market value

Risk factor


Low to High, depending on the type of mutual fund




Nature of returns


Dividends and capital gain


Depends on your income tax slab

Short-term and long-term capital gains are charged depending on the type of mutual fund

Additional read: Light Up your Portfolio with SIP

Which one should you pick?

If you are a highly risk-averse investor, FDs are the obvious choice because these investments provide guaranteed returns at regular intervals. The risk of default is extremely low. Banks also insure up to Rs. 5,00,000 of FDs in case of default. 

However, if you want to consider a better rate of return on your investment, you can consider debt mutual funds. These funds invest in debt securities that offer comparatively better returns. Since the investment is diversified, the risk associated with these funds is comparatively low. When you invest in a debt mutual fund, you get exposure to different fixed income securities, such as corporate bonds, government bonds, commercial paper, etc. Debt mutual funds are also excellent investment options for the short term.

If you have a higher risk appetite and want to dip your feet in the equities market but still want some risk protection, you can consider starting a SIP in a hybrid mutual fund. These funds invest in both equities and debt instruments. The debt component somewhat balances out the risk from equities.

SIPs in equity mutual funds are for you if you have a high-risk appetite and can stomach market volatility in the long run. Owing to the high risk that you assume, you also stand the chance of making a higher profit. Even in equity mutual funds, you can choose to invest in large-cap funds or ETFs for relatively lower risk. Mid-cap and small-cap funds have the potential for high returns, but they also have comparatively higher risk.


Fixed deposits are not ideal investments if you want to grow your wealth. SIP in mutual funds are a better bet. You can consider SIPs in debt mutual funds if you are a conservative investor. If you are willing to assume more risk, then hybrid or equity mutual funds can help you build wealth in the long run.

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