Tool

FD vs SIP

After-tax comparison: fixed deposit lump sum vs equity mutual fund SIP. Includes LTCG tax on equity and income tax on FD interest.

Monthly Amount (₹)

Duration (Yrs)

FD Rate (%/yr)

SIP Return (%/yr)

Income tax slab (for FD): Apply 12.5% LTCG on equity gains

Fixed Deposit

—

After-tax corpus

Equity SIP

—

After-tax corpus

FD: interest taxed annually at slab rate (assumed reinvestment). Equity SIP: LTCG at 12.5% on gains above ₹1.25L (FY 2025-26 rules). Does not model TDS.

How both options grow your money

A fixed deposit earns a fixed interest rate — currently 6.5–7.5% for 1–3 year deposits at most banks. That interest is added to your deposit each year (or paid out), and you pay income tax on it at your slab rate. Simple and predictable.

A SIP in an equity mutual fund invests in company stocks. Returns are not guaranteed — they've ranged from -50% to +80% in a single year for the Nifty 50. But over 10+ years, the Nifty 50 has averaged ~13% CAGR. When you sell after more than 1 year, gains above ₹1.25 lakhs per year are taxed at just 12.5% (LTCG).

The formula — why the after-tax gap is large

FD After-Tax Return FD Net Rate = FD Rate × (1 − Tax Slab ÷ 100)

Example: 7% FD, 30% tax slab →
Net rate = 7% × (1 − 0.30) = 4.9% per year
At 6% inflation, your real return is 4.9% − 6% = −1.1% per year. You're losing purchasing power.

Equity SIP After-Tax (Approximate) Effective Rate ≈ Gross Return − (LTCG Rate × Gains Fraction)

Example: 12% SIP return, ₹10,000/month for 10 years →
Gross corpus ≈ ₹23.2L on ₹12L invested. Gain = ₹11.2L.
Exempt portion: ₹1.25L/year × 10 years = ₹12.5L (covers entire gain here).
LTCG tax ≈ ₹0 in this scenario. Net corpus ≈ ₹23.2L vs FD after-tax ≈ ₹14.8L.

When FD is the right choice

FDs are not bad — they're just the wrong tool for long-term goals. Use FDs for: emergency fund (3–6 months expenses), money needed within 1–3 years, and capital you can't afford to lose. Never put money you might need soon in equity — a 30–40% market drop can take 2–4 years to recover.

Frequently Asked Questions

What is LTCG tax on equity mutual funds?

Long-Term Capital Gains (gains from equity held more than 1 year) are taxed at 12.5% on the portion above ₹1.25 lakhs per financial year. Gains below ₹1.25L/year are completely tax-free. This is significantly better than the 20–30% slab tax on FD interest.

Is a debt mutual fund better than FD now?

After 2023 tax changes, debt fund gains are taxed at slab rates — same as FD interest. The indexation benefit was removed. For most investors, FDs and debt funds are now roughly equivalent after tax. Debt funds may offer slightly more liquidity flexibility.

What return should I assume for equity SIP planning?

Use 10–11% for conservative long-term planning. The Nifty 50 has averaged ~13% CAGR since inception, but individual 10-year periods can deliver as little as 5–6% if you start near a market peak. Never plan on 15%+.