Post Office FD vs SIP: Which investment will yields higher returns on Rs 5.5 lakh in 5 years?

Post Office FD offers fixed, risk-free returns, while SIP provides market-linked growth. Compare their returns, risks and tax benefits.

ZeeBiz WebTeam | Jan 30, 2025, 12:06 PM IST

A Fixed Deposit (FD) in the Post Office National Savings Time Deposit Account (TD) provides secure, fixed returns with government backing. In contrast, a Systematic Investment Plan (SIP) allows investors to invest periodically in mutual funds, offering potentially higher but market-dependent returns. This comparison evaluates returns, risks, liquidity and tax benefits.

 

1/10

Understanding Post Office Fixed Deposit (FD)

Understanding Post Office Fixed Deposit (FD)

  • The National Savings Time Deposit Account (TD) offers fixed returns and is backed by the government, ensuring capital protection.
  • Interest is calculated quarterly but paid annually.

2/10

Interest Rate & Tax Benefits of Post Office FD

Interest Rate & Tax Benefits of Post Office FD

  • The 5-year FD offers 7.5% interest annually.
  • Investments in a 5-year FD qualify for tax deduction under Section 80C of the Income Tax Act.

3/10

Returns on Post Office FD for Rs 5.5 Lakh Investment

Returns on Post Office FD for Rs 5.5 Lakh Investment

  • Invested Amount: Rs 5,50,000
  • Estimated Returns: Rs 2,47,471
  • Total Value After 5 Years: Rs 7,97,471

4/10

Premature Withdrawal & Extension in Post Office FD

Premature Withdrawal & Extension in Post Office FD

  • Withdrawal before 6 months: Not allowed.
  • Closure before 1 year: Interest as per Post Office savings account rate.
  • After 1 year: 2% lower interest than the applicable FD rate.
  • Extension: Can be extended for the original tenure with the same maturity interest rate.

5/10

What is Systematic Investment Plan (SIP)?

What is Systematic Investment Plan (SIP)?

  • SIP is a mutual fund investment method where you invest a fixed amount monthly rather than a lump sum.
  • The power of compounding and rupee cost averaging helps in wealth accumulation.

6/10

SIP Returns on Rs 5.5 Lakh Investment in 5 Years

SIP Returns on Rs 5.5 Lakh Investment in 5 Years

  • Monthly Investment: Rs 9,167
  • Total Investment: Rs 5,50,020
  • Estimated Returns: Rs 2,06,133
  • Total Value After 5 Years: Rs 7,56,153

7/10

SIP vs FD: Key Differences

SIP vs FD: Key Differences

  • Features Post Office FD SIP (Mutual Funds)
  • Returns Fixed (7.5%) Market-linked
  • Risk Low (Government-backed) Moderate to High (Market-dependent)
  • Liquidity Lock-in period (except premature closure) Can withdraw anytime
  • Tax Benefits 80C for 5-year FD Tax on gains (LTCG or STCG)
  • Investment Type Lump sum Monthly contributions

8/10

Risk Factor: FD vs SIP

Risk Factor: FD vs SIP

  • Post Office FD is low risk, ensuring guaranteed returns but lower flexibility.
  • SIP is market-linked, providing higher potential returns but carrying risks due to market fluctuations.

9/10

Taxation Impact on FD and SIP

Taxation Impact on FD and SIP

  • FD Interest is fully taxable under income tax slabs.
  • SIP Taxation:
  • Equity SIP: Gains above Rs 1 lakh taxed at 10% (LTCG) if held for over a year.
  • Debt SIP: Taxed as per income slab for short-term holdings.

10/10

Post Office FD vs SIP

Post Office FD vs SIP

  • Choose FD if you prefer safe, fixed returns and tax benefits.
  • Choose SIP if you seek higher returns and can take market risks.
  • FD wins in terms of total returns in this case, but SIP may outperform if the market performs well.

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