FD vs SIP: ₹10 lakh FD or ₹5,000 SIP, which will make you a crorepati first? Know which strategy gives big returns quickly, and how much time it takes to achieve the target of ₹1 crore.
FD vs SIP: If we talk about investing savings money, then often people have options… Fixed Deposit (FD) or Systematic Investment Plan (SIP). Those who have a little bigger amount, they invest money in fixed deposit. On the other hand, those who have the habit of regular savings, they choose options like SIP.
But the real question is, if the target is Rs 1 crore, then which strategy will take you there first. ₹10 lakh FD or ₹5,000 SIP every month? Let’s understand its complete calculation.
Fixed Deposit: What is it, and its advantages and disadvantages
FD i.e. Fixed Deposit is one of the traditional and safe investment mediums. In this, you deposit a lump sum amount and the bank gives you a fixed return on it according to a fixed interest rate. The period of FD is fixed in advance and its interest rate is not affected by market fluctuations.
It has some special advantages. Like your money remains safe and the interest rate is already fixed. There is no risk of stock market fluctuations in it. Senior citizens also get the benefit of additional interest rate. If we talk about the negative point, then the return in FD is limited, on an average up to 6-7%. It often fails to beat the inflation rate. Then there is also a tax liability on interest. Its long-term growth remains very slow.
How long will it take to make 1 crore from FD?
Now suppose you have deposited ₹ 10 lakh in lump sum FD and the interest rate is 7% per annum. Let us see in how many years this amount will become ₹ 1 crore with compounding at this rate.
| Year | Maturity Amount |
| 10 years | ₹19.67 lakh |
| 15 years | ₹27.59 lakh |
| 20 years | ₹38.70 lakh |
| 25 years | ₹54.23 lakh |
| 30 years | ₹76.12 lakh |
| 33.5 years | ₹1 Crore (approx) |
This means that it takes approximately 33.5 years for an FD of ₹10 lakh to become ₹1 crore. That too, if there is no tax on the interest and no withdrawal is made during the entire period.
SIP: Less investment, but more potential
SIP or Systematic Investment Plan is an investment model. In this, you invest a fixed amount in mutual funds every month. This amount can range from ₹ 100 to thousands. This scheme is linked to the stock market, so there are fluctuations in it. But, in the long run, equity based SIP has been successful in giving better returns on average.
If we talk about the benefits of SIP, then it is possible to start with a small investment. The effect of compounding is more visible in it. There is no hassle of lock-in period like FD. It can be started or stopped anytime. Some tax relief is available on long term capital gains. On the other hand, if we talk about risk, SIP with equity mutual fund scheme is completely dependent on market fluctuations. Also, there is no guarantee of fixed returns. You have to invest with discipline and patience.
How long will it take to make ₹1 crore from a SIP of ₹5000?
SIP gives an average long term return of 12% per annum. Now suppose you do a SIP of ₹5,000 every month and are getting an average return of 12% per annum. Below is the time taken to make ₹1 crore at this pace:
| Year | total investment | Maturity Amount |
| 20 years | ₹12 Lakh | ₹34.88 lakh |
| 25 years | ₹15 Lakh | ₹67.28 lakh |
| 29 years | ₹17.4 lakh |
₹1 Crore (approx)
|
| 30 years | ₹18 Lakh | ₹1.53 crore |
This means that with a monthly SIP of ₹5,000, you can reach the figure of ₹1 crore in about 29 years, that too without investing a large lump sum amount. On the other hand, if you continue the SIP of ₹5000 for 33.5 years like FD, then with the power of compounding, your total return will be ₹2.71 crore. On the other hand, in this period, an FD of ₹10 lakh will be able to make only ₹1 crore.
FD vs SIP: Which option is better?
The answer to this question depends entirely on your convenience. According to experts, if your aim is only to protect your capital and you cannot bear the fluctuations of the market, then FD is a better option. But to reach Rs 1 crore, you will have to maintain it for 33.5 years, which is a long and slow process. Also, many times it is not practical to maintain FD for such a long period.
On the other hand, SIP starts with less capital, but with discipline and patience, it makes the target of Rs 1 crore possible in 29 years. There is also scope for better returns in this. For example, some mutual fund schemes can give an average return of 15% to 20%. However, the risk in these is also high.
If you get 15% annual return on your SIP of Rs 5000, then you will create a fund of Rs 1 crore in just 21 years and 4 months. That is, about 12 years earlier than FD.
Disclaimer: The information provided here is for information purposes only. It is important to note here that investing in the market is subject to market risks. Always seek expert advice before investing as an investor. Businessleague never recommends investing money to anyone here.
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