Rs 5 Lakh Investment: SIP Vs Fixed Deposit — Which One Is Better?

Investments, particularly of high value, can be tricky to manage. In such cases, it is important to choose the right assets to maximise returns while lowering risks.

Before making large investments, investors should assess risk appetite, investment horizon and overall financial goals. It is possible that just comparing returns across multiple instruments may not suffice in such cases since every asset serves a different purpose.

For example, fixed deposits offer safety and stable returns, while mutual fund SIPs provide comparatively higher growth over time. A Systematic Investment Plan (SIP) is a method of investing in mutual funds through small, regular contributions. Investors can either start a monthly SIP or choose to invest a lump sum amount at one go.

Generally, FDs and SIPs are commonly preferred investment instruments in India. However, these investment options differ widely in features, returns and tenure. It could be a prudent step to evaluate all instruments as per your financial goals, investment duration and risk tolerance before investing.

Let’s take a look at how an investment of Rs 5 lakh in FDs and SIPs could grow over a predetermined period.

Tenure: 3 years

Amount: Rs 5 lakh

Returns: 6.45% per annum

Interest earned: Rs 1,05,825

Final value: Rs 6,05,825

Hence, an investment of Rs 5 lakh will turn into Rs 6.05 lakh after three years in an FD. While the returns may seem lower, it could be a suitable option for investors looking for secure investment avenues.

Assuming an investor wants to invest Rs 5 lakh over three years, the same tenure as the FD, through SIPs, the amount would stand at around Rs 14,000 per month.

SIP amount: Rs 14,000

Investment duration: 3 years

Expected rate of return: 12% per annum

Invested amount: Rs 5,04,000

Estimated returns: Rs 1,05,107

Total value: Rs 6,09,107

Instead of the SIP route, if an investor decides to make a lump sum contribution of Rs 5 lakh to mutual funds, the maturity amount is expected to rise to around Rs 7,02,464 over three years at an assumed interest rate of 12% per annum.

This shows that mutual funds offer a higher growth potential even over a short-term horizon. However, investors should note that SIP returns could be impacted by market volatility.

Investors can use such comparisons to understand how their funds might perform over time under different assets. However, any long-term financial commitments should be thoroughly discussed with an expert to avoid financial stress in the future.