Your parents say FD. Your colleague says SIP. The numbers make the answer clear over 20 years.
₹5,000/month for 20 years
| Investment | Rate | 20-Year Value |
|---|---|---|
| Bank FD | 7% | ~₹26.2 Lakhs |
| Nifty 50 SIP | 12% | ~₹49.9 Lakhs |
| Flexi-Cap SIP | 14% | ~₹66 Lakhs |
Total invested: ₹12 lakhs. FD returns ₹26 lakhs. Index SIP returns nearly ₹50 lakhs. That is almost double — purely from the higher compounding rate. This is the core principle of the power of compounding.
When FD is better
- Investment horizon under 3 years
- Emergency fund — needs safety guarantee
- Near retirement — need predictable income
Tax angle
FD interest is fully taxable at your income tax slab. Long-term equity mutual fund gains are taxed at just 10% above ₹1 lakh/year. For most salaried Indians, SIPs are far more tax efficient. Learn more: what is an index fund and how much to invest based on salary.