FD vs RD vs SIP — Which Gives More Return? Calculated With Real Numbers
Everyone has an opinion on this. Your parents swear by FDs. Your colleague won't stop talking about SIPs. And RD sits quietly in the corner, appreciated by nobody. This is the comparison nobody does properly — same amount, same period, real numbers, taxes included.
My father has had the same FD strategy since 1994 and sees no reason to change it. Every time a renewal comes up, he walks into the bank, signs the papers, and comes back satisfied. My cousin, who started working three years ago, puts money into a Nifty index fund SIP every month and checks the NAV more often than necessary. They've had this argument at every family gathering for two years now and neither of them has actually sat down with a calculator.
This article is that calculator. I'm going to use actual numbers — not vague ranges or best-case assumptions — and show what each option gives you on the same amount of money over the same period. I'll also cover taxes, which is the part most comparisons quietly skip over because it makes the numbers less clean.
One important note before we start: SIP returns are not guaranteed. I'll use historical averages from Indian equity mutual funds as reference points, clearly labeled as assumptions, not promises. The FD and RD numbers, by contrast, are contractually fixed once you lock in.
What Each One Actually Is
A Fixed Deposit (FD) is a lump sum you park with a bank for a fixed tenure at a fixed interest rate. The bank guarantees that rate for the entire period regardless of what interest rates do in the market. You get back principal plus interest at maturity — or you can opt for quarterly/monthly interest payouts instead.
A Recurring Deposit (RD) is the monthly installment version of an FD. You commit to depositing a fixed amount every month for a fixed tenure and the bank gives you a fixed interest rate, similar to FD rates. Good for people who don't have a lump sum but can save a fixed amount every month. The interest is calculated on the reducing balance — each installment earns interest from the month it's deposited until maturity.
A SIP (Systematic Investment Plan) is a method of investing, not an investment product itself. You invest a fixed amount every month into a mutual fund. The mutual fund invests in stocks, bonds, or a mix depending on the fund type. Your returns depend entirely on how the market performs. There is no guarantee — the value can go up or down. The most common SIP is into equity mutual funds, which is what this comparison focuses on.
The fundamental difference in one line each
FD: lump sum, guaranteed return, bank's promise.
RD: monthly investment, guaranteed return, bank's promise.
SIP: monthly investment, market-linked return, no promise — could be more, could be less.
The Comparison — ₹5,000 Per Month for 5 Years
To make this comparison honest, I'm using the same starting point for RD and SIP: ₹5,000 per month for 60 months, total invested ₹3,00,000. Current RD rates at major banks (SBI, HDFC, ICICI) for a 5-year tenure are approximately 6.8–7.1% per annum. I'm using 7% — a middle-of-the-road figure that's neither generous nor pessimistic.
For SIP, I'm showing three scenarios: 10% annual return (conservative), 12% (roughly in line with Nifty 50's long-term historical average), and 15% (an optimistic scenario). These are assumed rates for illustration — actual returns vary by fund and period. The Nifty 50 index has delivered approximately 12–13% CAGR since inception in 1996, though individual years have ranged from around −50% to +75%.
| Option | Rate / Assumption | Maturity Value | Gain Over ₹3L Invested |
|---|---|---|---|
| RD (bank) | 7% p.a. guaranteed | ₹3,59,500 | ₹59,500 |
| SIP — Equity (conservative) | 10% p.a. assumed | ₹3,89,000 | ₹89,000 |
| SIP — Equity (moderate) | 12% p.a. assumed | ₹4,12,000 | ₹1,12,000 |
| SIP — Equity (optimistic) | 15% p.a. assumed | ₹4,48,000 | ₹1,48,000 |
Maturity value comparison — ₹5,000/month for 5 years (bar = value relative to RD baseline)
At 12% assumed return, SIP gives roughly ₹52,500 more than RD on ₹3 lakh over 5 years. That's meaningful but not dramatic over a 5-year horizon. The RD's guaranteed ₹59,500 gain looks reasonable when you factor in that the SIP's 12% is an assumption, not a promise. A bad 5-year period for markets — say a 2008-type crash followed by slow recovery — could easily bring SIP returns below the RD figure.
Five years is genuinely too short for equity SIP to show its structural advantage. That advantage becomes much clearer at 10 years and beyond.
The Tax Reality Nobody Talks About
This is the section that changes the comparison more than most people expect. RD and FD interest is fully taxable as per your income tax slab, every year. SIP gains in equity mutual funds have a more favourable tax structure for long-term investors.
How RD and FD interest is taxed
The interest you earn on an RD or FD is added to your income for that financial year and taxed at your applicable slab rate. If you're in the 30% bracket, 30% of your interest income goes to tax. Banks also deduct TDS at 10% if interest income from a bank exceeds ₹40,000 in a year (₹50,000 for senior citizens). If you're in a higher bracket, you pay the difference while filing returns.
On the RD example above — ₹59,500 interest over 5 years — someone in the 30% slab pays about ₹17,850 in tax on that interest. Their post-tax gain drops to roughly ₹41,650. Their effective post-tax return on the RD drops from 7% to about 4.9%.
How equity SIP is taxed
Equity mutual fund gains held for more than one year attract Long Term Capital Gains (LTCG) tax at 10% on gains above ₹1 lakh per financial year. In a SIP, each monthly instalment is treated as a separate investment for tax purposes. So the instalment from month 1 qualifies as long-term after one year. Only the gain portion — not the principal — is taxable, and only above the ₹1 lakh annual threshold.
On a 5-year SIP with ₹1,12,000 total gains at 12% assumed return: LTCG kicks in on gains above ₹1 lakh. If you redeem everything in one year, approximately ₹12,000 of that gain is taxable at 10%, meaning ₹1,200 in tax. Compare that to the ₹17,850 the RD investor in 30% bracket pays — that's a substantial difference in what actually lands in your account.
⚠️ The post-tax comparison flips the picture
Pre-tax, the 7% RD looks reasonable. Post-tax for someone in the 30% slab, the effective RD return is around 4.9%. An equity SIP at 12% assumed return, taxed at LTCG of 10% only on gains above ₹1 lakh, keeps far more of its return. The headline rates don't tell the real story — the tax structure matters as much as the rate itself.
| Option | Pre-tax Gain | Tax (30% slab / LTCG) | Post-tax Gain |
|---|---|---|---|
| RD at 7% | ₹59,500 | ~₹17,850 (30% slab) | ~₹41,650 |
| RD at 7% (20% slab) | ₹59,500 | ~₹11,900 (20% slab) | ~₹47,600 |
| SIP Equity at 12% (LTCG) | ₹1,12,000 | ~₹1,200 (10% on ~₹12K above ₹1L) | ~₹1,10,800 |
The numbers above assume the entire SIP is redeemed in a single financial year. In practice, systematic withdrawals spread across years further reduce the taxable portion. The RD tax hit also assumes all interest is taxed at the marginal rate — in lower slabs the difference narrows. But the structural advantage of equity LTCG taxation over FD/RD interest taxation is real and significant, especially for investors in higher income brackets.
The 10-Year Picture Changes Everything
Five years is where the RD looks defensible. Ten years is where compounding in equity starts to visibly separate from fixed-income instruments. Here's the same ₹5,000/month comparison but over 10 years (120 months, total invested ₹6,00,000).
| Option | Rate / Assumption | Maturity Value | Total Gain | Multiple on Invested |
|---|---|---|---|---|
| RD at 7% | 7% p.a. guaranteed | ₹8,68,000 | ₹2,68,000 | 1.45× |
| SIP at 10% assumed | 10% p.a. assumed | ₹10,33,000 | ₹4,33,000 | 1.72× |
| SIP at 12% assumed | 12% p.a. assumed | ₹11,61,000 | ₹5,61,000 | 1.94× |
| SIP at 15% assumed | 15% p.a. assumed | ₹13,93,000 | ₹7,93,000 | 2.32× |
At 10 years, the gap is no longer close. The RD at 7% gives ₹8,68,000 on ₹6,00,000 invested — a gain of ₹2,68,000. A SIP averaging 12% gives ₹11,61,000 — a gain of ₹5,61,000, more than double the RD's gain on the same investment. Even at a conservative 10% assumed return, SIP gives ₹1,65,000 more than the RD.
This is the core argument for equity SIP — not that it's better in every year, but that compounding at a higher rate over a long enough period creates a gap that fixed-income instruments genuinely can't close. The math becomes more extreme at 15–20 year horizons, which is why the "invest early" advice for equity makes mathematical sense.
Running the same numbers myself before writing this
Before writing this article I ran through all these scenarios on the Interest Calculator at 21K Tools — plugging in the compound interest settings for both the RD (quarterly compounding) and the SIP scenarios (monthly compounding at different assumed rates). It took about five minutes to confirm all the numbers above and generate the month-by-month breakdown that showed how slowly the RD balance grows in years 8–10 compared to how quickly the equity-scenario balance accelerates.
The tool itself doesn't model market volatility — that's not what it's for. But for understanding what a fixed compound rate produces over time, it's accurate and fast. The amortisation table for the RD showed that after 5 years, roughly 58% of the RD's total interest had already been earned — the compounding curve on RD is much flatter than on equity.
The Years SIP Went Wrong — Being Honest About Risk
Any comparison that only shows SIP's good side is selling you something. Let me show the other side clearly.
The Nifty 50 index — India's benchmark equity index — has had these calendar year returns in recent history: 2008 was −51.8%. 2011 was −24.6%. 2015 was −4.1%. 2019 was +12.0% (decent). 2020 was +14.9% (positive despite the pandemic crash, because of the recovery). These are the index returns. Fund returns varied around these figures.
A 5-year SIP that ran from January 2005 to December 2009 included the 2008 crash. Despite the crash, the SIP actually held up reasonably well because the monthly averaging meant you were buying units at very low prices during the crash — but someone who started in 2007 and checked their portfolio in 2009 saw significant losses on paper and many people stopped their SIPs at exactly the wrong time.
⚠️ Three things that make SIP returns lower than the index return
Expense ratio: Every mutual fund charges an annual expense ratio — typically 0.1–0.5% for index funds, up to 1.5–2% for actively managed equity funds. This is deducted from your returns. A 1% expense ratio on a 12% gross return brings your net return to about 11% — not catastrophic but compounding matters.
Exit loads: Most equity funds charge a 1% exit load if you redeem within one year of each investment. In a SIP, each monthly instalment has its own one-year clock. Redeeming everything before the entire portfolio is one year old means paying exit load on recent instalments.
Behavioural risk: The data shows SIP is an effective strategy. The data also shows that most retail investors don't actually get index-level returns because they pause SIPs during market crashes, resume when markets recover, and effectively buy high while not buying low. The returns from a SIP that runs uninterrupted through crashes and corrections are genuinely good. The returns from one that gets paused at the wrong time are much less so.
None of this makes SIP bad. It makes it important to understand what you're signing up for before you start. An RD at 7% is boring but it does exactly what it says. A SIP in equity has historically outperformed over long periods but requires the discipline to not panic during the periods it looks terrible.
The Lump Sum Situation
So far this comparison has been about monthly investments (RD vs SIP). But FD is fundamentally a lump sum instrument, and it deserves a proper comparison on those terms.
If you have ₹3,00,000 to invest as a lump sum for 5 years, here's what the numbers look like.
| Option | Rate | Maturity Value | Gain |
|---|---|---|---|
| FD (major bank, 5 years) | 7% quarterly compounding | ₹4,24,500 | ₹1,24,500 |
| FD (small finance bank) | 8.5% quarterly compounding | ₹4,53,000 | ₹1,53,000 |
| Lump sum equity MF (assumed 12%) | 12% p.a. assumed | ₹5,28,000 | ₹2,28,000 |
The FD at 7% gives ₹1,24,500 on a 5-year lump sum. The lump sum equity investment at 12% assumed gives ₹2,28,000 — nearly double the gain. But again, if the market is down at exactly the 5-year mark when you need to redeem, you could get significantly less than even the FD. A lump sum equity investment carries more risk than a SIP because there's no monthly averaging — you're fully exposed from day one.
FDs also come with DICGC insurance of up to ₹5 lakh per depositor per bank — your principal and interest are protected up to that limit even if the bank fails. No such insurance exists for mutual fund investments.
Which Actually Makes Sense for Who
After going through all the numbers, the honest answer to "which is better" is: it depends on your situation, not just the returns. Here's how I'd actually think about this decision.
FD makes sense when:
You have a lump sum and a specific, non-negotiable end date — a down payment for a house in 3 years, tuition fees due in 18 months, a wedding fund with a fixed date. These are goals where you simply cannot afford market timing risk. The guaranteed return and the DICGC protection matter more than maximising returns. FDs from small finance banks (AU, Equitas, Jana, ESAF) currently offer rates of 8–9%, which are meaningfully higher than major banks and still DICGC-insured.
RD makes sense when:
You want to build a disciplined savings habit with guaranteed returns. If you're saving toward a specific medium-term goal (1–3 years) and the idea of seeing your portfolio value drop 20% would actually cause you to stop saving, the RD's boring stability is genuinely the right call for you. It's also useful as part of an emergency fund strategy — the money stays safe and earns more than a savings account.
SIP (equity) makes sense when:
Your investment horizon is at least 5–7 years, ideally 10+. You have the psychological capacity to watch your portfolio value drop and not sell. You're in a higher tax bracket where the LTCG advantage of equity over FD/RD interest taxation is meaningful. You're investing toward long-term goals — retirement, a child's higher education, wealth accumulation — rather than near-term specific expenses.
💡 The combination most financial planners actually suggest
It's not FD OR SIP. Most sensible plans have both. 3–6 months of emergency fund in an FD or liquid fund (safe and accessible). Medium-term goal money (3–5 years) in debt funds or FDs. Long-term wealth building (7+ years) in equity SIP. The question isn't which is best overall — it's which is right for which money and which goal.
Frequently Asked Questions
Small finance banks (AU Small Finance Bank, Equitas, Jana, ESAF, Ujjivan, etc.) are regulated by the RBI and covered under DICGC insurance exactly like major banks — up to ₹5 lakh per depositor per bank. The higher rates (currently 8–9% for 1–3 year FDs vs 6.8–7.1% at major banks) reflect a slightly higher risk profile, but for amounts within the ₹5 lakh DICGC limit, the insurance protection is identical. Many conservative investors keep FDs under ₹5 lakh across multiple small finance banks to capture the higher rates while staying fully insured.
For most retail investors, yes — for a specific reason: expense ratio. The Nifty 50 index funds from major AMCs (Nippon, HDFC, ICICI, Axis) charge expense ratios of 0.1–0.2% per year. Actively managed large-cap equity funds charge 1–1.5%. Over 10–15 years, that 1% annual difference compounded significantly reduces your final corpus.
The other reason is consistency. Most active large-cap funds don't consistently beat the Nifty 50 index after expenses over long periods. Some do in some years, but predicting which fund will outperform is difficult. An index fund guarantees you get exactly the market return minus a small expense. That's not a bad deal for a passive investor who doesn't want to research fund managers.
If you stop a SIP (pause or cancel), the units already purchased stay invested and continue to grow (or fall) with the market. You don't lose your existing investment by stopping future instalments. Most funds allow you to pause a SIP for 1–3 months without cancelling it, which is useful during temporary cash crunches.
The risk of stopping isn't losing what you've invested — it's behavioural. Most people stop SIPs when markets are falling (when they're scared) and restart when markets have recovered (when they feel safe). This effectively inverts the benefit of rupee cost averaging — you stop buying during the cheap phase and resume during the expensive phase. Keeping a SIP running through a downturn is the discipline that generates the returns over time.
Yes, FDs can be prematurely withdrawn at most banks. The standard penalty is a reduction in interest rate of 0.5–1% below the rate applicable for the period you actually held the deposit. For example, if you placed a 5-year FD at 7% but break it after 2 years, the bank will pay you the 2-year rate (say 6.75%) minus the premature withdrawal penalty (say 0.5%), so you'd effectively earn 6.25% instead of 7%.
Some banks offer special flexi-FDs that allow partial withdrawals without penalty, which is worth looking into if liquidity is a concern. Tax-saving FDs (5-year lock-in under Section 80C) cannot be prematurely withdrawn — that's the trade-off for the tax deduction.
The Interest Calculator at 21K Tools handles both. For FD: select "Compound Interest," enter the principal, annual rate, tenure in months, and set compounding to quarterly (which is standard for Indian banks). It shows the maturity value and the month-by-month interest accrual.
For RD or SIP: use the same compound interest calculator but enter the monthly amount and adjust for the compounding frequency you want to model. Note that for SIP, any return rate you enter is an assumed rate — the calculator shows what you'd get if that return holds, not what the market will actually deliver. It's useful for comparing scenarios (what if I get 10% vs 12%) rather than predicting actual outcomes.
Almost always, yes, if you won't need the money for the RD tenure. Savings accounts at major banks pay 2.5–3% on balances. A 1-year RD at the same bank pays around 6.5–7%. The gap is significant for money you don't need to access month-to-month. The only reason to keep money in a savings account instead of an RD is if you need instant liquidity — savings accounts can be accessed any time with no penalty, while an RD has a premature withdrawal penalty. For emergency fund money, a high-interest savings account or liquid fund is better than an RD. For any money you won't touch for 6 months or more, an RD or short-term FD makes more sense than leaving it in savings.
The Honest Summary
FD wins on safety and certainty. RD wins on building a monthly savings discipline with a guaranteed rate. SIP in equity wins on long-term returns — historically and when held through full market cycles — but asks you to accept volatility and the real possibility that in any given 3–5 year period, the market might not cooperate.
The comparison I've done here uses the same amounts and the same periods to make it fair. The tax section is the most underappreciated part — an FD at 7% for someone in the 30% bracket is effectively a 4.9% post-tax return, which changes the picture considerably. That's not an argument against FDs — it's an argument for knowing what you're actually getting.
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