Decision workflow
Compare a fixed deposit against an equity SIP on post-tax maturity value — the only number that actually reaches you.
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Last reviewed
July 10, 2026
Content update
Auto-updated on Jun 28, 2026
Scope: This workflow compares guaranteed FD interest (taxed yearly at your slab) with an equity SIP projection (taxed at capital-gains rates on redemption) over the same horizon and contribution pattern.
Primary references
How to fill this quickly
The same amount goes into both paths every month.
When you actually need the money back.
Card rate; interest is compounded quarterly.
Equity returns are not guaranteed; use a sober estimate.
Most FD vs SIP comparisons stop at the headline: a fixed deposit pays around 7% guaranteed, equity SIPs have averaged more over long periods, so the SIP “wins”. That framing hides the part that actually decides the outcome for a salaried investor — tax treatment. FD interest is added to your income and taxed at your slab rate plus cess every single year, even on cumulative deposits where you see no cash until maturity. The interest that should be compounding is thinned out annually. Equity fund gains work the opposite way: nothing is taxed while the money compounds, and at redemption long-term gains are taxed at just 12.5% — and only on the amount above the ₹1.25 lakh annual exemption.
The asymmetry is large enough to flip intuition. At the 30% slab, a 7% FD keeps an effective post-tax yield of roughly 4.94% a year. For the FD to match even a modest equity outcome, it would need a card rate no bank offers. And the effect exists even with no return advantage at all: if both routes earned an identical ~7.19% effective annual return on ₹10,000 a month for 10 years, the equity route would still finish about ₹1.54 lakh ahead for a 30%-slab investor — a gap produced entirely by when and how each is taxed.
What the tax math cannot capture is risk. The FD number is contractual; the SIP number is an assumption about markets that do not owe you 12%. That is why this workflow ends with a horizon-aware verdict rather than a bare comparison: under about three years, sequence risk usually outweighs the projected edge, and the guaranteed side deserves the win.
Take the default inputs: ₹10,000 a month for 10 years, a 7% FD rate (quarterly compounding, so ~7.19% effective), a 12% equity assumption, and the 30% slab. Both paths receive the same ₹12,00,000 of contributions. The FD grows to ₹17,27,001 before tax, but yearly slab taxation claws back ₹1,87,786, leaving ₹15,39,215. The SIP projects ₹23,00,387, with gains of ₹11,00,387; after the ₹1.25 lakh exemption, 12.5% LTCG plus cess takes ₹1,26,800, leaving ₹21,73,587 — about ₹6.34 lakh (41%) more, if the return assumption holds.
Shrink the horizon to 3 years and the picture tightens: ₹4,30,769 projected for the SIP (gains fall inside the exemption, so zero tax) versus ₹3,86,584 post-tax for the FD — an 11% paper edge that one bad market year can erase, which is why the verdict flips to the FD side for short horizons.
FD path: the card rate is converted to an effective annual yield using quarterly compounding ((1 + r/4)&sup4; − 1), then reduced by your slab rate × 1.04 cess to model interest being taxed on accrual each year; deposits compound at that net yield. SIP path: standard future-value of monthly contributions at the expected return; at redemption, gains above ₹1,25,000 are taxed at 12.5% plus cess (20% if the horizon is under 12 months).
Simplifications to know: all SIP gains are treated as long-term (see the FAQ on the 12-month clock per installment), the exemption is applied once at redemption, TDS on FD interest is treated as part of the same slab tax rather than separately, and surcharge above ₹50 lakh incomes is not modelled.
Neither is universally better. Over ₹10,000 a month for 10 years at a 7% FD rate versus a 12% equity assumption, the SIP path projects roughly ₹21.7 lakh post-tax against ₹15.4 lakh for the FD at the 30% slab — but the FD figure is guaranteed and the SIP figure is not. For money needed within about three years, the FD usually deserves the win regardless of projections.
FD and RD interest is added to your income and taxed at your slab rate plus 4% cess — every year on an accrual basis, even for cumulative deposits that only pay out at maturity. Banks may also deduct TDS once your interest crosses the notified threshold. Because tax bites annually, the interest that should be compounding is steadily thinned out.
For equity mutual funds in FY 2026-27, gains on units held over 12 months are long-term: taxed at 12.5% (plus cess) only on the amount above the ₹1.25 lakh annual exemption. Units sold within 12 months attract 20% short-term tax. Crucially, nothing is taxed until you redeem — the full corpus keeps compounding in the meantime.
Tax treatment alone still separates them. At an identical ~7.19% effective annual return on ₹10,000 a month for 10 years, a 30%-slab investor keeps about ₹16.94 lakh via the equity route versus ₹15.39 lakh via the FD — a gap of roughly ₹1.54 lakh created purely by annual slab taxation versus deferred capital-gains taxation.
Strictly, each SIP installment has its own 12-month clock, so units bought in the final year before redemption are short-term. This tool assumes you redeem at least 12 months after your last installment (or that final-year gains are small, as they usually are). If you plan to redeem immediately after stopping the SIP, expect slightly more tax than shown.
Yes. Bank deposits carry DICGC insurance up to the prescribed limit per depositor per bank, the maturity value is contractual, and senior citizens typically get a higher card rate plus preferential interest-income treatment. A SIP into an equity fund can be down 20–30% exactly when you need the money. This workflow prices the tax drag, not the sleep-at-night value of a guarantee.