SIP vs FD: Where ₹5,000/Month Grows More Over 10 Years

By Ayush Laxkar, Founder of MoneyMath.co.in · Published 30 June 2026 · Investing

Meera in Hyderabad had ₹5,000/month to invest. Her parents said FD — it was safe, reliable, and the family had always done it that way. Her colleague at the IT firm said SIP — he had been doing it for three years and his portfolio looked healthy. Meera spent two weeks reading conflicting articles before deciding to just run the actual numbers. Here is what she found.

The Same ₹5,000/Month: Four Outcomes Over 10 Years

The table below shows where ₹5,000/month goes across four different vehicles, all held for 10 years. No switching, no timing — just consistent monthly investment.

Total amount invested across all four: ₹6L (₹5,000 × 120 months). The RD gave her ₹8.7L — a ₹2.7L gain. The equity SIP at 12% gave her ₹11.6L — a ₹5.6L gain. That ₹2.9L gap is entirely from the return differential compounding over a decade.

Post-Tax Comparison: The Number That Actually Matters

Meera is in the 30% tax bracket. Her FD and RD interest is added to her income and taxed at 30% plus 4% cess — an effective rate of 31.2%. That 7% RD becomes a post-tax return of about 4.8% in her hands. The after-tax corpus on ₹8.7L drops closer to ₹7.8L in net benefit.

For the equity SIP: gains held for more than 12 months attract LTCG at 12.5% above ₹1.25L per year. For a smaller investor redeeming in chunks, most gains may fall below the ₹1.25L annual exemption. Effective post-tax return on a ₹11.6L corpus with ₹5.6L in gains: she might owe ₹4.38L in taxable LTCG (₹5.6L − ₹1.25L exemption × roughly half the months having crossed 12 months), taxed at 12.5% ≈ approximately ₹40,000 in total LTCG tax. Net corpus: ₹11.56L.

Net result after tax: SIP ₹11.56L vs RD ₹7.8L in net benefit. The gap is ₹3.76L — larger than the pre-tax gap, because FD interest is taxed heavily and SIP LTCG is taxed lightly.

The 20-Year Picture: Where the Real Wealth Difference Emerges

At 10 years, the gap between SIP and FD is meaningful but not dramatic. Extend to 20 years and the compounding effect becomes the entire story.

The same ₹12L invested over 20 years: ₹26.2L in an RD vs ₹49.9L in a 12% equity SIP. That ₹23.7L gap is purely from the return differential compounding for two decades. For a 30-year-old planning retirement at 60, this 30-year compounding math becomes even more stark — and the equity SIP advantage only grows with time.

Inflation-Adjusted Real Returns: What You Actually Earn

India's CPI inflation has averaged around 5.5–6% over the last decade. When you account for inflation, the FD's 7% becomes much less impressive. A rough real return calculation:

FD at 7%, inflation at 5.5%: real return = approximately 1.4% per year. Your money is barely growing in purchasing power terms.

Equity SIP at 12%, inflation at 5.5%: real return = approximately 6.2% per year. You are genuinely building wealth.

For a 30% taxpayer, the post-tax, inflation-adjusted (real) returns are:

A 30% taxpayer in an FD earning 7% is, in real terms, losing purchasing power every year. This is not a theoretical concern — over a 10-year FD-only strategy, Meera's ₹6L invested actually buys less in goods and services in year 10 than it did in year 0, after accounting for inflation and tax. The "safety" of the FD is real for capital preservation in nominal terms. But as a wealth-building tool over 10+ years, it is not safe at all.

What Most People Get Wrong

They compare the headline rates — SIP 12% vs FD 7% — and stop there. Two errors compound from this. First, they forget the tax treatment. A 7% FD for a 30% taxpayer has an after-tax yield of about 4.9%; that is the honest comparison number. An equity SIP at 12% with LTCG at 12.5% (and the ₹1.25L annual exemption eating much of the gain for smaller portfolios) has an effective after-tax return closer to 11%. The real spread is closer to 6 percentage points, not 5. Second, they treat FD as risk-free and SIP as risky and conclude the comparison ends there. FD is not risk-free — it carries inflation risk (a 7% FD in a 6% inflation environment earns 1% real) and reinvestment risk when rates fall. These are risks; they just are not market risks.

Frequently Asked Questions

Is SIP better than FD for long-term investment?

For 10+ year horizons, SIP in equity mutual funds historically outperforms FD significantly. ₹5,000/month in SIP at 12% CAGR grows to ₹11.6L in 10 years vs ₹8.7L in a 7% recurring deposit. But SIP returns are not guaranteed; FD returns are.

What is the SIP return vs FD return comparison in India?

SIP in equity mutual funds has historically delivered 10–14% CAGR over 10-year periods. FD rates in India are currently 6.5–7.5% p.a. After tax, the gap narrows: LTCG on equity SIP is 12.5% above ₹1.25L; FD interest is taxed at your income tax slab.

Is SIP taxable in India?

Yes. Equity mutual fund SIP gains held less than 12 months attract STCG at 20%. Gains held more than 12 months attract LTCG at 12.5% above ₹1.25L exemption per year. Debt fund gains are taxed at your income slab rate.

Is FD interest taxable in India?

Yes. FD interest is added to your total income and taxed at your income slab rate. At the 30% bracket, ₹1L of FD interest costs ₹30,000 in tax plus 4% cess = ₹31,200 in tax. TDS is deducted at 10% if annual FD interest exceeds ₹40,000 (₹50,000 for senior citizens).

What are the risks of SIP vs FD?

SIP in equity mutual funds carries market risk — returns can be negative in any 1–3 year period. FD has no market risk but carries inflation risk (7% FD in 6% inflation = 1% real return). DICGC insures FD up to ₹5 lakh per bank per depositor.

What is your investment horizon — and are you comparing SIP and FD on a pre-tax or post-tax basis?