SIP vs FD After Tax: The Actual Math

Note: All figures use the data snapshots that power this site's own calculator, dated 13 July 2026. Rates move. Verify before you act on anything here.

₹5,51,406.

That is the post-tax gap between a ₹10,000/month SIP and the same ₹10,000/month going into a fixed deposit, over ten years, for someone in the 30% tax slab. The SIP ends at ₹20.66 lakh. The FD ends at ₹15.15 lakh.

Now here is the part that surprised me when I actually ran it. Before tax, that same gap is 29.2%. After tax, it is 36.4%. Taxing both instruments properly did not shrink equity's advantage. It grew it.

That is the opposite of what almost every "but don't forget taxes!" comment thread implies, and it is the reason I wanted to write this down.

This is educational and informational only. It is not financial advice. I am describing how the arithmetic behaves, not what you should do with your money. Mutual fund investments are subject to market risks. Consult a SEBI-registered financial advisor before making investment decisions.

Why pre-tax comparisons mislead

Almost every SIP-vs-FD comparison you'll find puts two headline numbers side by side: roughly 11% for equity, roughly 6.4% for an FD. Then it declares equity the winner and moves on.

The problem isn't that the headline numbers are wrong. It's that they are taxed in structurally different ways, and the difference is about timing, not just rate.

FD interest is taxed every year, at your slab, whether or not you touch the money. Your bank accrues interest, the taxman takes his cut annually, and the amount left to compound next year is smaller. The tax doesn't just reduce your final number — it reduces the base that grows. Drag applied every single year, compounding against you.

Equity LTCG is taxed once, on redemption. Twenty years of gains compound completely untouched, and only at the end does a 12.5% haircut land on the gains above a ₹1.25 lakh exemption. The government is, in effect, giving you an interest-free loan on your own deferred tax liability for two decades.

One instrument is taxed on the way through. The other is taxed on the way out. That asymmetry is worth more than the headline rate gap suggests, and pre-tax comparisons make it invisible.

The site's SIP/FD calculator models exactly this. In src/lib/finance/tax.ts, FD tax isn't subtracted at the end — it's baked into a reduced effective compounding rate: effective = nominal × (1 − slab). SIP tax is a single subtraction on gains: (futureValue − totalInvested − exemption) × ltcgRate. Two different shapes of formula, because they're two different shapes of tax.

The inputs, and where they come from

I am deliberately not inventing numbers. Every input below comes from a data file in this repo that the live calculator reads:

Two things I want to flag before the numbers, because they matter.

The 10.86% is a trailing figure, not a forecast. The trailing 1-year CAGR in the same file is −2.25%. Equity's long-run average is assembled out of years that look nothing like the average, and no amount of arithmetic changes that.

The 6.40% is a 2-to-3-year FD rate. Comparing it over 20 years silently assumes you can keep rolling that deposit at the same rate for two decades. You can't know that. Reinvestment risk is a real cost that the FD column never shows.

Ten years, ₹10,000 a month

Total invested either way: ₹12,00,000.

SIP leg. sipFutureValue() gives ₹21,71,928 at 10.86%. Gains are ₹9,71,928. Subtract the ₹1.25 lakh exemption and ₹8,46,928 is taxable. At 12.5% that's ₹1,05,866 of LTCG tax. Post-tax corpus: ₹20,66,062.

Notice how small that tax is: 4.87% of the final corpus, or 10.89% of gains. The exemption plus the deferral does a lot of work.

FD leg. At a 30% slab the effective rate drops from 6.40% to 4.48%. Compounded quarterly, the ₹10,000/month stream matures at ₹15,14,656. At a 20% slab the effective rate is 5.12%, maturing at ₹15,67,649.

For reference, the same FD with no tax at all reaches ₹16.81 lakh.

So the scoreboard at ten years:

Tax made the gap wider at both slabs. The FD lost ₹1.66 lakh to tax at the 30% slab; the SIP lost ₹1.06 lakh. Same headline rates, different tax geometry.

Stretching the horizon

Fifteen years, ₹18,00,000 invested:

• SIP pre-tax ₹45,28,517 → LTCG tax ₹3,25,440 → ₹42,03,077
• FD at 20% slab: ₹27,06,394 (SIP leads 55.3%)
• FD at 30% slab: ₹25,65,910 (SIP leads 63.8%)

Twenty years, ₹24,00,000 invested:

• SIP pre-tax ₹85,74,696 → LTCG tax ₹7,56,212 → ₹78,18,484
• FD at 20% slab: ₹41,74,984 (SIP leads 87.3%)
• FD at 30% slab: ₹38,79,468 (SIP leads 101.5%)

At twenty years and a 30% slab, the SIP post-tax corpus is more than double the FD's. Not because equity returned double — the headline rates are 10.86% versus 6.40% — but because the FD spent twenty years compounding at an effective 4.48% while the SIP compounded at the full 10.86% and paid once at the end.

Also worth noticing: the SIP's effective tax rate rises with horizon, from 10.89% of gains at ten years to 12.25% at twenty. That's the ₹1.25 lakh exemption becoming a smaller slice of a bigger pie, asymptotically approaching the full 12.5%. The exemption is a meaningful cushion on small corpora and close to a rounding error on large ones.

The crossover point

The more useful question isn't "which wins at 10.86%," because nobody is owed 10.86%. It's: how badly can equity underperform and still come out ahead post-tax?

I solved for the equity CAGR at which the post-tax SIP exactly equals the post-tax FD:

Against a 6.40% FD, equity only needs about 4.9% CAGR at the 30% slab to break even, and about 5.5% at the 20% slab. Roughly half the trailing ten-year number.

Two readings of this table.

First, the slab moves the crossover meaningfully — about 65-70 basis points between the 20% and 30% brackets. Your tax bracket is a genuine input to this comparison, not a footnote. The higher your slab, the more the FD's annual taxation hurts, and the lower the bar equity has to clear.

Second, and less intuitively, the horizon barely moves it at all — 5.50% to 5.57% across a decade of extra time. I expected a bigger effect. The reason is that the two forces cancel: longer horizons give equity more untaxed compounding, but they also dilute the fixed ₹1.25 lakh exemption. Time is not the lever here. The slab is.

I want to be blunt about what this table is not. A 4.9% breakeven does not mean equity is free money. It means the FD delivers its 6.40% with near-certainty while equity's 10.86% is an expectation with enormous variance around it. The breakeven tells you the required return, not the probability of getting it, and the ten-year trailing average conceals years like the −2.25% sitting in the same data file. Someone who needs the money on a fixed date in three years is asking a completely different question than this arithmetic answers.

Where this model is wrong

I would rather you distrust these numbers for the right reasons than trust them for the wrong ones. The methodology page documents the calculator's assumptions in full; here are the ones that bite hardest in this specific comparison.

FD tax as an effective rate is a simplification. Modelling annual slab tax as nominal × (1 − slab), compounded quarterly, is not how TDS mechanically works. Real FD taxation is annual accrual, 10% TDS above ₹40,000 of interest (₹50,000 for senior citizens), and the balance settled at filing. The effective-rate approach captures the economics — tax dragging on the compounding base — but it is an approximation, not a tax computation. Treat it as directionally right, not filing-accurate.

Single redemption at maturity. The LTCG model applies one ₹1.25 lakh exemption to the entire gain. A staggered SWP-style withdrawal would claim that exemption across multiple years and pay meaningfully less tax. This assumption is conservative — it understates the SIP's post-tax result, which means the real gap is likely wider than shown.

The calculator's FD leg now matches mine. The on-site calculator's Compare tab models the FD leg as a monthly contribution stream matching the SIP — the same like-for-like comparison used in this post — rather than a lumpsum deposited on day one. (An earlier version of the calculator used the lumpsum framing, which was more generous to the FD and showed a narrower gap than the tables above.) The standalone FD Calculator tab still models a day-one lumpsum, correctly, since that's the right model when you actually have a lumpsum to deposit. See the methodology page for the exact model each tab uses.

Everything ignores costs and behaviour. No expense ratios, no exit loads, no premature-withdrawal penalties on the FD, and no allowance for the investor who stops the SIP in month 14 of a drawdown. That last one has ended more equity plans than tax ever has.

The number nobody puts in the headline

One last calculation, using applyInflation() and the Fisher equation rather than naive subtraction, at 6% CPI:

• Equity at 10.86% nominal → 4.58% real
• FD at 20% slab, 5.22% effective → −0.74% real
• FD at 30% slab, 4.56% effective → −1.36% real

After tax and inflation, a 6.40% fixed deposit held by a 30% slab taxpayer loses about 1.36% of purchasing power per year. It is nominally safe and quietly shrinking. That is the sentence the 6.40% headline is doing its best not to say — and it's a reason to be precise about what "safe" means, because an FD protects your capital's number, not its buying power.

None of which makes an FD useless. Emergency funds, near-term goals, and money you genuinely cannot afford to see fall 30% belong somewhere stable, and paying 1.36% a year for that certainty is a legitimate trade. It just deserves to be a decision you make with the real number in front of you, rather than one the headline rate makes for you.

Run your own numbers

Mine are one set of inputs. Yours will differ — different slab, different horizon, different amount, different assumed return, and possibly a senior-citizen rate that adds 50 basis points to the FD side.

The SIP/FD calculator takes all of those as inputs and shows the post-tax verdict directly, with live NIFTY CAGR and scraped FD rates rather than numbers I typed in. The methodology page shows every formula and data source behind it, including the limitations I listed above.

Change one thing when you use it: set your actual tax slab before you look at any output. It's the input that moves the crossover point most, and it's the one every generic comparison quietly assumes away.

This is the first of three posts working through the arithmetic behind that calculator — the other two take apart the sentiment gauge sitting on top of it and the fixed-income options I skipped past here.

Related Reading

• What the Market Mood Index Measures (and Doesn't) — the three inputs behind the calculator's sentiment gauge, and why it can't tell you when to start a SIP.
• Small Savings Schemes vs Debt Funds in 2026 — PPF, NSC and SCSS versus debt funds, after the 2023 indexation change.