Choosing between a Systematic Investment Plan (SIP) and an SBI Fixed Deposit (FD) for long-term wealth creation depends on risk appetite, return expectations, and investment goals. Here’s a detailed comparison of how an investment of Rs 10.5 lakh will grow in 10 years under both options.
What is Systematic Investment Plan (SIP)?
A Systematic Investment Plan (SIP) allows investors to invest a fixed amount in mutual funds at regular intervals. This method helps in disciplined investing and takes advantage of rupee-cost averaging to manage market fluctuations.
How SIPs work
- Investors choose a mutual fund scheme and invest a predetermined amount periodically (monthly, quarterly, etc.).
- The amount is automatically debited from their bank account and converted into mutual fund units based on the prevailing Net Asset Value (NAV).
- Over time, reinvested returns help in wealth accumulation through compounding.
- Investors can opt to receive returns at maturity or at periodic intervals.
SIP returns on Rs 10,50,000 investment in 10 years
- Monthly Investment: Rs 8,750
- Total Invested Amount: Rs 10,50,000
- Estimated Returns: Rs 9,10,314
- Total Value After 10 Years: Rs 19,60,314
What is an SBI Fixed Deposit (FD)?
A Fixed Deposit (FD) with SBI’s National Savings Time Deposit Scheme offers stable and guaranteed returns over a fixed tenure. This option is preferred by risk-averse investors looking for capital safety and predictable earnings.
Key features of SBI FD
Investment Tenure: 1 year, 2 years, 3 years, or 5 years, with the option to extend.
Minimum Investment: Rs 1,000, with no maximum limit.
Interest Payment: Compounded annually and credited to the investor’s savings account.
Tax Benefit: 5-year FDs qualify for deductions under Section 80C of the Income Tax Act, 1961.
Premature Withdrawal: Allowed with penalties based on the withdrawal period.
SBI FD returns on Rs 10,50,000 investment in 10 years
- Invested Amount: Rs 10,50,000
- Estimated Returns: Rs 11,57,467
- Total Value After 10 Years: Rs 22,07,467
SIP vs SBI FD: Which one should you choose?
- For Higher Returns: SBI FD currently offers better estimated returns than an SIP over a 10-year period. However, SIPs have the potential to deliver even higher returns if the market performs well.
- For Risk Tolerance: FDs are low-risk investments with guaranteed returns, while SIPs are subject to market fluctuations and may yield higher or lower returns than estimated.
- For Liquidity: SIPs offer better liquidity as investors can pause or withdraw investments partially without heavy penalties. FDs, on the other hand, have stricter withdrawal conditions.
If you prefer stability and guaranteed returns, SBI FD is a safer option. However, if you have a higher risk appetite and long-term financial goals, an SIP can be more rewarding due to the power of compounding and market-linked growth.
