Investment: Important news for those who invest in FD and SIP, know where you can become a millionaire quickly..
FD vs SIP: People who have a large amount to save often prefer fixed deposits (FD). It is a safe option where your money gets locked for a fixed period and gets fixed interest. On the other hand, for those who save small amounts regularly, Systematic Investment Plan (SIP) is a better option.
But the real question is, if the target is Rs 1 crore, which strategy will get you there first. FD of ₹10 lakh or SIP of ₹5,000 every month? Let's understand its complete calculation.
Fixed Deposit: What is it, and its advantages and disadvantages-
FD, or fixed deposit, is a safe and traditional investment option. In this, you deposit a lump sum amount for a fixed period. The bank gives you a fixed return on this deposit as per the pre-determined interest rate. Due to the fixed duration of FD, its interest rate is not affected by market fluctuations, making it a reliable investment medium.
It has some special advantages. Like your money is safe and the interest rate is fixed in advance. There is no risk of stock market fluctuations in it. Senior citizens also get the benefit of an additional interest rate. If we talk about the negative point, the return in FD is limited, on average up to 6-7%. It often fails to beat the inflation rate. Then there is also tax liability on interest. Its growth remains very slow in the long term.
How long will it take to make 1 crore from FD?
Now suppose you have deposited ₹ 10 lakh in lump sum FD and the interest rate is 7% per annum. Let us see in how many years this amount will become ₹ 1 crore with compounding at this rate.
Years - Maturity Amount
10 years ₹19.67 lakh
15 years ₹27.59 lakh
20 years ₹38.70 lakh
25 years ₹54.23 lakh
30 years ₹76.12 lakh
33.5 years ₹1 crore (approx.)
This means that it takes about 33.5 years for an FD of ₹10 lakh to become ₹1 crore. That too, if there is no tax on interest and no withdrawal is made during the entire period.
SIP: Less investment, but more potential-
Systematic Investment Plan (SIP) is an investment model where you invest a fixed amount in mutual funds every month. This amount can be as low as ₹100 or as high as thousands. SIP is linked to the stock market, so it fluctuates. However, equity-based SIPs have given better returns on average in the long term.
If we talk about the benefits of SIP, it is possible to start with a small investment. The effect of compounding is more visible in it. There is no hassle of lock-in period like FD. It can be started or stopped at any time. Some tax relief is available on long-term capital gains. On the other hand, if we talk about the risk, then SIP with equity mutual fund schemes is completely dependent on market fluctuations. Also, there is no guarantee of fixed returns. You have to invest with discipline and patience.
In how much time will a SIP of Rs 5000 become ₹ 1 crore?
SIP gives an average long-term return of 12% per annum. Now suppose you do a SIP of Rs 5,000 every month and are getting an average return of 12% per annum. Below is how much time it will take to make Rs 1 crore at this pace:
Year Total investment Maturity amount
20 years ₹12 lakh ₹34.88 lakh
25 years ₹15 lakh ₹67.28 lakh
29 years ₹17.4 lakh
₹1 crore (approx.)
30 years ₹18 lakh ₹1.53 crore-
This means that with a monthly SIP of Rs 5,000, you can reach the figure of Rs 1 crore in about 29 years, that too without investing a large lump sum amount. On the other hand, if you continue SIP of Rs 5000 for 33.5 years like FD, then with the power of compounding, your total return will be Rs 2.71 crore. On the other hand, in this period, an FD of Rs 10 lakh will be able to make only Rs 1 crore.
FD vs SIP: Which option is better?
Your goal depends entirely on your risk tolerance. If you want capital protection and want to avoid market fluctuations, then FD (Fixed Deposit) is a good option. However, it will take 33.5 years to reach Rs 1 crore, which is a very long and slow process. Maintaining FD for such a long period is also often not practical.
On the other hand, SIP starts with less capital, but with discipline and patience, makes the goal of Rs 1 crore possible in 29 years. There is also scope for better returns in this. For example, some mutual fund schemes can also give an average return of 15% to 20%. However, the risk in these is also high.
If your SIP of Rs 5000 gives 15 percent annual return, then you will create a fund of Rs 1 crore in just 21 years and 4 months. That is, about 12 years before FD.
Disclaimer: This content has been sourced and edited from Hr Breaking. While we have made modifications for clarity and presentation, the original content belongs to its respective authors and website. We do not claim ownership of the content.
