Systematic investment plan or fixed deposits: It is quite a difficult task to choose an investment plan from among many investment plans and schemes. We all have different savings needs and goals. This article will help you choose the best investment plan to suit your needs. Among the investment options, fixed deposits and systematic investment plans are the two options that have many advantages and offer a lot to the investors. Here are the details of systematic investment plan and fixed deposit and the main differences between them. (Regular investment plan or fixed deposits)
Systematic Investment Plan (SIP)
A Systematic Investment Plan (SIP) is a way of investing in mutual funds, where a fixed amount can be invested in a mutual fund at regular intervals, say once a month or once a quarter, instead of a lump sum investment. SIP investment can be started from just Rs 500 per month. This is similar to a recurring deposit. Along with good returns, SIP plan helps investors to develop the discipline of timely investment in a planned manner without worrying about market volatility and market timing. This is the best and easy way to enter the mutual funds of the world. Investing in systematic investment strategies has many advantages. The investment can be realized based on the needs of the investor. Investors can easily monitor the progress of their investments. Investing in SIP without traveling is quite a simple process. You may be eligible for tax benefits if you invest in a SIP for more than one year. SIPs allow you to invest in open-ended funds that allow you to withdraw and invest money at any time.
A fixed deposit is a type of lump sum investment plan with a fixed interest rate for a specified period of time. It is offered by both non-bank financial institutions and banks. This is one of the safest investment plans in the market because it guarantees a higher return on the investor’s investment. The best thing about fixed deposits is that the return on your investment is guaranteed. Banks and non-banking financial institutions provide many types of fixed deposits to meet the short-term and long-term needs of investors. Fixed deposits have many advantages. This is tax free. Term deposits offer flexibility as investors can choose the period and amount that best suits their needs. . In case of emergency, the investor can easily close the FD and withdraw the funds through overdraft. If you invest in a tax-saving fixed deposit for five years, you will be entitled to various tax benefits.
The main differences between SIP and Term Deposit
Investment: SIP investments are made in installments, while fixed deposits are made all at once. It is easy to start investing in both the financial instruments by considering the investment options offered to potential investors in terms of SIPs and FDs. SIPs, on the other hand, are significantly simpler because you can start with a small amount and still have the potential for higher returns.
Interest: Compared to fixed deposits, the interest rates offered by systematic investment programs are higher. As a result, investing in SIP is completely dependent on chance when it comes to guaranteed returns. In case of FDs, the investor is promised higher returns irrespective of the amount deposited.
Tax: When it comes to the critical issue of tax savings, most FDs are taxed based on the investor’s income tax bracket. A tax-saving FD is one that allows an investor to claim Rs. 1.5 million deductions. Like SIPs, if the units are sold after one year, investors will have to pay a percentage of tax.