FD is taxed at your income slab rate every year. SIP (equity MF) is taxed at just 12.5% LTCG — and only when you redeem. This after-tax difference compounds dramatically over time. See the real numbers.
By Deepak Jha, NISM Series V-A certified · Last updated
Most people compare SIP and FD by headline numbers: "My FD gives 7.5%" vs "My SIP gave 12%." But this comparison ignores how they're taxed — and the tax difference is enormous over the long term. FD interest is taxed every year, which kills compounding. SIP gains are only taxed when you sell. This calculator shows you the fair, after-tax comparison.
Priya invests ₹10,000/month in FD at 7.5%. Suresh invests ₹10,000/month in equity SIP at 12%. Both for 15 years. Both in the 30% income tax bracket.
📌 Priya's FD after 15 years: Each year's interest is taxed at 30% as it's earned — this annual tax drag kills compounding. Final in-hand: ~₹20.1 lakh
📌 Suresh's SIP after 15 years: No tax during 15 years. At redemption, LTCG at 12.5% (with ₹1.25 lakh exemption). Final in-hand: ~₹41.6 lakh
Difference: ₹21.5 lakh in Suresh's favour — even after paying more absolute tax overall.
The FD's "safety" cost Priya ₹21.5 lakh. Suresh took equity risk but was rewarded with 2× more real wealth.
FD's hidden flaw: annual taxation on interest. Every year you pay tax, that taxed amount stops compounding forever. Over 15 years, this "tax drag" compounds to a massive number. SIP lets the entire corpus grow untouched for years, then pays tax once at the end — often at a lower effective rate due to the ₹1.25L LTCG exemption.
Treating all FD interest as "guaranteed income." FD interest is added to your total income and taxed at your slab rate — 30% if you're in the highest bracket. A 7.5% FD for a person in 30% slab gives a post-tax return of just 5.25%. That's below inflation. You're losing money in real terms while feeling "safe."
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