HomePersonal Finance NewsWhy investors prefer SIPs, gold to bank deposits even in high interest regime

Why investors prefer SIPs, gold to bank deposits even in high interest regime

According to Association of Mutual Fund of India (AMFI), the number of mutual fund SIP accounts went up to 6.05 crore as of November 30, 2022, compared to 5.93 crore as of October 31, 2022. CNBC-TV18.com spoke to experts and sifted some figures to find out what is causing this uptick.

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By Anshul  January 6, 2023, 5:53:42 PM IST (Published)

4 Min Read
Why investors prefer SIPs, gold to bank deposits even in high interest regime
Banks are currently struggling to find low-cost current account savings accounts (CASA), despite rates going north. The dent can be felt by looking at the recent third quarter business updates of various lenders. In fact, trends show that systematic investment plans (SIPs), real estate and gold are captivating investors more than bank deposits.


According to Association of Mutual Fund of India (AMFI), the number of mutual fund SIP accounts went up to 6.05 crore as of November 30, 2022, compared to 5.93 crore as of October 31, 2022. The SIP assets under management (AUM) stood at Rs 6.83 crore for November, when the number of new SIPs increased by 21.77 lakh. The increase in the amount of SIPs collected shows that retail investors are taking a disciplined approach to their mutual fund investment. On the contrary, bank deposits such as fixed deposits (FDs) are seeing a decline.



Given that, CNBC-TV18.com spoke to experts to find out the reasons for the same

Inflation

Traditional investment avenues in India such bank fixed deposits (FD) do not appear as rewarding as earlier if compared to SIPs (equity) or other investments, said Saurav Basu, Head, Wealth Management at Tata Capital, while talking to CNBC-TV18.com.

"This is because equity SIPs and real estate tend to beat inflation and provide capital appreciation over longer time frame whereas gold acts as a hedge to the portfolio and generates moderate returns. Historically, bank FDs have given modest returns and have not been able to beat inflation in the long run," Basu said.

Actually FDs are not prone to inflation risk.

Liquidity and returns

When we talk about SIPs and gold, the liquidity factor definitely comes up, along with the ability to capture better returns compared to a bank deposit, said Prakhar Pandey, Founder and CEO at Moolaah.

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"This is due to the varied time periods of entering the market, and thriving on multiple credits rather than fixating all investments on one single bank/deposit taking NBFC. The idea of diversification and multiple entry points, provide better liquidity and returns that can be captured across the portfolio," Pandey told CNBC-TV18.com.

Here are 1-year, 2-year, 3-year, 5-year and 10-year returns offered by large cap funds:



























































































Fund name1-year2-year3-year5-year10-year
Canara Robeco Bluechip Equity Fund - Direct Plan - GrowthLarge Cap Fund4.02%8.22%26.69%50.29%120.89%
Aditya Birla Sun Life Frontline Equity Fund - Direct Plan - GrowthLarge Cap Fund4.95%10.31%30.02%44.27%103.54%
Axis Bluechip Fund - Direct Plan - GrowthLarge Cap Fund-0.69%1.39%15.86%35.20%105.27%
Bank of India Bluechip Fund - Direct Plan - GrowthLarge Cap Fund2.93%----
Baroda BNP Paribas Large Cap Fund - Direct Plan - Growth (Adjusted NAV)Large Cap Fund303.73%336.84%413.41%495.32%761.11%
Baroda BNP Paribas Large Cap Fund - Direct Plan - GrowthLarge Cap Fund5.14%10.06%27.22%46.81%112.02%
BOI AXA Bluechip Fund - Direct Plan - GrowthLarge Cap Fund2.93%----
Canara Robeco Bluechip Equity Fund - Direct Plan - GrowthLarge Cap Fund4.02%8.22%26.69%50.29%120.89%
DSP Top 100 Equity Fund - Direct Plan - GrowthLarge Cap Fund5.28%7.26%22.06%33.75%76.16%
Edelweiss Large Cap Fund - Direct Plan - GrowthLarge Cap Fund5.76%10.56%29.12%46.75%

(Source: Moneycontrol)

Now, let's take a look at the current returns of fixed deposit (FD) of key banks




































































Name of BankFor General Citizens (p.a.)For Senior Citizens (p.a)
SBI3.00% to 6.75%3.50% to 7.25%
HDFC Bank3.00% to 7.00%3.50% to 7.75%
ICICI Bank3.00% to 7.00%3.50% to 7.50%
IDBI Bank3.00% to 6.25%3.50% to 7.00%
Kotak Mahindra Bank3.75% to 6.80%3.25% to 7.50%
RBL Bank3.25% to 7.55%3.75% to 8.05%
KVB Bank4.00% to 7.25%5.90% to 7.65%
Punjab National Bank3.50% to 7.25%4.00% to 7.75%
Canara Bank3.25% to 7.00%3.25% to 7.50%
Axis Bank3.50% to 7.00%3.50% to 7.75%
Bank of Baroda3.00% to 6.75%3.50% to 7.25%
IDFC First Bank3.50% to 7.50%4.00% to 8.00%

Taxation

SIPs are bound on capital gains taxation with an indexation benefit. On the other hand, in case of bank deposit, the interest is charged as per the income tax slab. This means if someone is in 30 percent tax bracket then, 7 percent FD will only yield 4.9 percent returns post-tax.

Limited choice

FDs offer limited choice as interest rates are fixed, depending on the tenure that can be between seven days and 10 years. With SIPs, gold as well as real estate, investors have the option of investing across several time periods, asset classes and potential returns.

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