SIP vs Fixed Deposit: What will you get in return if you invest Rs 5,00,000 in each?
Compare mutual funds and fixed deposits to see what returns Rs 5 lakh investment can yield in 5 years. Understand features, benefits, risks, and tax-saving options to make informed decisions.
Mutual funds and Post office fixed deposits (FDs) are popular investment options with distinct features and benefits. Mutual funds pool money from investors to invest in stocks, bonds or other securities, offering potential high returns but carrying market risks. Fixed deposits, on the other hand, are risk-free savings schemes that provide guaranteed returns at pre-decided interest rates over a fixed tenure. This article explores some of the key benefits of the two investment avenues. Here are some of the key points to remember while picking between the two.
(Disclaimer: This is not an investment advice. Do your own due diligence or consult an expert for financial planning)
What Are Mutual Funds?
Mutual funds pool money from multiple investors to invest in securities like stocks, bonds, or short-term debt. Investors hold shares representing their ownership in the portfolio.
Why Do People Buy Mutual Funds?
- Professional Management: Fund managers handle research and investments.
- Diversification: Reduces risk by investing in various sectors.
- Affordability: Requires low initial investment.
- Liquidity: Shares can be redeemed anytime at the prevailing NAV.
Types of Mutual Funds
- Money Market Funds: Low-risk investments in high-quality, short-term securities.
- Bond Funds: Moderate to high-risk investments with varied returns.
- Stock Funds: Investments in corporate stocks, offering options like growth funds and sector funds.
- Target Date Funds: Adjust investment mix based on target retirement date.
Benefits and risks of Mutual Funds
- Benefits: Income through dividends, capital gains, and NAV appreciation.
- Risks: Potential loss of investment due to market fluctuations and performance volatility.
Mutual Fund returns on Rs 5 lakh in 5 years (Lump Sum)
On 8% Return: Rs 7,34,664 (Return: Rs 2,34,664)
On 10% Return: Rs 8,05,255 (Return: Rs 3,05,255)
On 12% Return: Rs 8,81,171 (Return: Rs 3,81,171)
Mutual Fund SIP Returns (Monthly Rs 8,333)
On 8% Return: Rs 6,16,365 (Return: Rs 1,16,385)
On 10% Return: Rs 6,50,660 (Return: Rs 1,50,680)
On 12% Return: Rs 6,87,359 (Return: Rs 1,87,379)
Fixed Deposit (FD)
Interest and Payment:
- Interest is payable annually but calculated quarterly.
- Interest can be credited to the savings account upon request, but no additional interest is given on unpaid interest.
Eligibility and Investment Limits
- Open to single adults, joint accounts (up to 3 adults), guardians for minors or individuals of unsound mind, and minors above 10 years.
- Minimum deposit: Rs 1,000 (multiples of Rs 100); no maximum limit.
Tenures and Tax Benefits
- Available for 1, 2, 3 or 5 years.
- The 5-year TD qualifies for Section 80C tax benefits under the Income Tax Act, 1961.
Premature withdrawal
- Not allowed within the first 6 months.
- After 6 months, savings account interest applies; after 1 year, interest is 2% less than the applicable TD rate for completed years.
Returns on Rs 5 lakh for 5 years
- Invested Amount: Rs 5,00,000.
- Estimated Return: Rs 2,24,974.
- Total Value: Rs 7,24,974.