SBI FD vs Mutual Fund: Which investment option may give you better returns in 3, 5, 7 and 10 years

SBI FD vs Mutual Fund: State Bank of India changed its fixed deposit rates on deposits below Rs 2 crore on Wednesday (December 27, 2023). Investors with an investment limit of less than a year and from 3 to 5 years are the biggest beneficiaries of the revised SBI FD rates. As a result, the investors in SBI FD will get richer as they will get a higher return.

SBI FDs are quite popular among investors seeking guaranteed returns and fixed income.

Since an FD is not market-linked, it is a popular investment option among investors with a low-risk appetite.

One can invest a lump sum minimum of Rs 1,000 up to no maximum limit for up to 10 years.

On the other hand, mutual fund investment through a systematic investment plan (SIP) and lump sum is also gaining popularity, given the historic returns the investors have gotten in the last decade.

Mutual funds are market-linked, and their value may increase or decrease with the performance of the stock market.

SBI FDs and mutual fund investments have their positives and negatives.

While an FD keeps your investment secure, a mutual fund investment may give you returns many times higher than you may get in FDs.

In this write-up, we will show you how the same amount of investment in SBI FD and mutual funds (lump sum) may give you completely different results in 3, 5, 7, and 10 years.

SBI FD vs Mutual Fund: Rs 1 lakh investment in 3 years

The SBI FD interest rate for the duration of three years to less than five years is 6.75 per cent, while for senior citizens, it is 7.25 per cent.

On the other hand, there is no fixed return in mutual funds.

However, given the historic return, we can assume a return of 12 per cent annually for our calculation.

Mutual funds also provide the opportunity of compounding, where your principal amount changes every cycle and you get a return on the entire amount, not just the initial principal amount.

In SBI FD, one would earn an interest of Rs 22,239 at a 6.75 per cent interest rate on a Rs 1 lakh investment, and the total return one will get in that period will be Rs 1,22,239. 

If you invest a Rs 1 lakh lump sum in a mutual fund and get a 12 per cent return, you will get Rs 40,493 as gains, and your total future value will be Rs 1.4 lakh.    

SBI FD vs Mutual Fund: Rs 1 lakh investment in 5 years

The interest SBI FD interest rate for investment duration of five years and above will be 6.5 per cent, unlike 6.75 per cent for 3 years and less.

In SBI FD, you will get an interest of Rs 38042 in five years, and the return you will get will be Rs 138042. 

In a mutual fund, your Rs 1 lakh lump sum will give you gains of Rs 76,234, and you will get Rs 176234 after 5 years.  

SBI FD vs Mutual Fund: Rs 1 lakh investment in 7 years

In SBI FD, a seven-year Rs 1 lakh investment will give you an interest of Rs 57,042, and you will get a return of Rs 1,57,042.

In a mutual fund, the same investment will give you a return of Rs 2.21 lakh in seven years.

SBI FD vs Mutual Fund: Rs 1 lakh investment in 7 years

In SBI FD, a seven-year Rs 1 lakh investment will give you an interest of Rs 57,042, and you will get a return of Rs 1,57,042.

In a mutual fund, the same investment will give you a return of Rs 2.21 lakh in seven years.

SBI FD vs Mutual Fund: Rs 1 lakh investment in 10 years

Since 10 years is the maximum limit of FD investment, you will get an interest of Rs 90556, and your total return will be Rs 190556.

In a mutual fund, you may earn Rs 2.11 lakh as capital gains, and your total return in 10 years will be Rs 3.11 lakh.