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SIP vs FD: Which Is Better? Returns Compared After Tax

Published July 18, 2026 · Updated October 4, 2026 · 8 min read · By Ramanathan · Paired with the FD Calculator

The short answer: for money you can leave invested for five years or more, an equity SIP has historically come out ahead of an FD, and after tax it needs to earn surprisingly little to do so — about 5.33% a year to match a 7% deposit if you are in the 30% slab. For money you need within a few years, or cannot afford to see fall, the FD wins on the thing a SIP cannot offer: certainty. The tables below compare the two like for like, before and after tax, and the rest of this guide covers risk, liquidity and how to choose. You can test your own numbers on the FD calculator and SIP calculator.

SIP vs FD returns, compared like for like

Most SIP-versus-FD comparisons set a lump-sum FD against a monthly SIP, which is not a fair fight. The like-for-like version of an FD for monthly saving is a recurring deposit (RD): the same ₹5,000 a month, at a deposit rate, guaranteed (the RD calculator works out any amount and tenure). Here is that RD next to the same ₹5,000 a month in an equity SIP over 10 years — ₹6,00,000 put in either way:

The SIP rows do not change with your slab because equity gains are taxed at flat rates, while deposit interest is taxed at your slab rate. That gap is the whole story for higher earners: at the 30% slab the RD above loses ₹83,775 of its interest to tax, against ₹57,086 on a SIP's far larger gain at 12%. Put the other way round, an equity SIP only has to earn about 5.33% a year to match a 7% RD after tax in the 30% slab, and about 6.05% in the 20% slab.

The same pattern holds for a lump sum (the lumpsum calculator projects any amount, after inflation and tax). ₹5,00,000 placed once for five years:

Two cautions keep these tables honest. First, the SIP and fund figures are assumptions, not promises: equity can fall 20% or more in a bad year, and over a short horizon the deposit can easily come out ahead. Second, the tax treatment is simplified in ways that, if anything, flatter the deposit: FD and RD interest is really taxed every year as it accrues, which costs more than paying the same tax at maturity as assumed here.

Tax rules as of October 4, 2026, per the Income Tax Department: deposit interest at your slab rate; equity fund units held more than 12 months taxed at 12.5% on gains above ₹1,25,000 a financial year, units held 12 months or less at 20%; 4% cess added in every case, surcharge ignored. Assumes the whole investment is redeemed in one financial year with no other equity gains that year. Fund growth is compounded monthly, as on the SIP calculator; the RD and FD compound quarterly, as banks do.

At a glance

What each one is

A fixed deposit (FD) is a deposit with a bank for a fixed period at a fixed interest rate. Your return is guaranteed and known in advance; the bank pays you the agreed rate regardless of what markets do. A SIP (Systematic Investment Plan) is not a product but a method: you invest a fixed amount every month into a mutual fund, usually an equity fund. Your return is not guaranteed — it rises and falls with the market — but over long horizons equity has historically outpaced fixed-income returns.

Which is riskier, an FD or a SIP?

This is the core difference. An FD offers certainty: you might earn around 6–7.5% a year, and you will not lose your principal. A SIP offers higher expected returns — historically 10–12% or more over long periods for equity funds — but with volatility along the way and no guarantee. In a bad year a SIP can be down 20% or more; an FD never is. So the question is not "which pays more" but "how much uncertainty can this particular goal tolerate."

Inflation is the quiet factor that tips this balance over long horizons. If an FD pays 7% while prices rise 6%, your real (inflation-adjusted) return is barely 1%, and after tax it can even be negative. Equity, for all its short-term noise, has historically grown faster than inflation over long periods. That is why SIPs are usually the better tool for goals that are a decade or more away.

How are FD and SIP returns taxed differently?

FD interest is fully taxable at your income-tax slab rate, and banks deduct TDS once your interest crosses the annual threshold. That drags down the effective return for anyone in a higher bracket. Equity mutual funds held through a SIP are taxed more gently: long-term capital gains (on units held more than a year) are taxed at 12.5% on gains above ₹1,25,000 a financial year, and units held a year or less at 20%, each with 4% cess on top. You are also taxed only when you redeem, not every year. For a taxpayer in the top slab, the after-tax gap between an FD and an equity SIP is wider than the headline returns suggest — see the like-for-like tables above.

Liquidity and safety

FDs are highly safe — bank deposits are insured up to ₹5 lakh per bank by the DICGC — and reasonably liquid. Breaking one early costs you a small penalty and a lower rate. SIP investments can usually be redeemed within a few days. But their value on any given day is whatever the market says, so selling during a downturn can lock in a loss. An FD's value never falls; a SIP's can. That makes FDs the better home for money you might need at short notice or on a fixed date.

A worked comparison

Suppose you can set aside ₹1,00,000. Here is that sum in a five-year FD next to two monthly SIP commitments over the same five years:

The SIP rows show potentially more growth, but the actual figure could be higher or lower, and the money is exposed to market swings throughout. These are not strictly like-for-like (one is a lump sum, the other a monthly commitment), which is precisely the point: FDs suit a sum you have now and want kept safe, while SIPs suit money you can invest gradually and leave to grow. The bigger SIP is a bigger potential number, still with no guarantee, against whatever a ₹30,00,000 lump-sum FD would earn with certainty over the same period.

A 10-year outcome table — and a genuine trap in comparing them

Stretch the same monthly amounts to 10 years, and something counter-intuitive shows up if you compare them the wrong way:

At the same total money in, the 7% FD wins here despite its lower rate — which looks backwards until you notice why. The FD scenario invests the entire sum on day one and lets all of it compound for the full 10 years. The SIP drip-feeds the same total in monthly instalments, so on average that money is only invested for about half the period. This is a timing effect, not a rate effect. It is exactly the "not strictly like-for-like" trap from the worked example above, made concrete: comparing a SIP's total contribution against a lump sum you never actually had on day one isn't a fair test of which product performs better. The honest comparison is the one this guide leads with — an FD for money you have now, a SIP for money you're building up. It is not "which grows a rupee faster," because that question silently assumes you have the rupee already.

Should you choose an FD or a SIP?

Lean towards an FD for short-term goals (under three years), for your emergency fund, for capital you cannot afford to see fall in value, or when you simply want certainty. Lean towards a SIP for long-term goals (five years or more) like retirement or a child's education, where time smooths out volatility and the higher expected return compounds meaningfully. In practice most people should use both: FDs and debt for the stable, near-term portion of their savings, and equity SIPs for long-term wealth building. The split between them is what financial planners call asset allocation, and it matters more than picking a single "winner."

Decide with the numbers

Rather than argue in the abstract, model your own case. Use the FD calculator to see the guaranteed maturity value for a sum you want kept safe, and the SIP calculator to project a monthly investment over your real time horizon. Comparing the two side by side — one certain, one an estimate — usually makes the right allocation obvious for each specific goal.

Compare the outcomes for yourself:
FD Calculator SIP Calculator

Related guide: The power of compounding — how SIP returns work

This guide uses Indian figures and rules. See the India home loan & EMI hub for more India-specific calculators and guides.