Bank Deposit vs Mutual Fund Investment: Should You Continue SIP or Stop It in 2025?

In today’s fast-evolving financial landscape, many investors find themselves wondering: Is Mutual Fund investment better than keeping money in bank deposits? More importantly, should you continue your SIP (Systematic Investment Plan) or pause it, especially with markets experiencing ups and downs?

This question has become crucial because mutual fund investments have been growing at a faster rate than bank deposits, and understanding why—and how it impacts your financial goals—is essential for making informed decisions.

Bank Deposit vs Mutual Fund Investment

Key Points	Details
Mutual Fund AUM vs Bank Deposits	Mutual Fund AUM reached 31% of total bank deposits in India
SIP Monthly Contribution (Feb 2025)	₹25,999 crore
Bank FD Rates (2025)	Average interest rates: 6.5% – 7.5% p.a.
Equity Mutual Fund Historical Returns	Average 12% – 14% CAGR over 10+ years
SIP Advantage	Rupee-cost averaging, long-term wealth accumulation

The answer isn’t one-size-fits-all. For safety, liquidity, and short-term needs, bank deposits remain unmatched. But if you want to build wealth, beat inflation, and grow your money over the long term, mutual funds—especially through SIPs—are the clear winners.

The data supports this: Mutual funds have outpaced bank deposit growth, and SIP contributions continue hitting record highs, proving that disciplined, long-term investing pays off.

Bank Deposits vs Mutual Fund Investments: What’s Happening?

The Growth Story of Mutual Funds

India’s mutual fund industry has witnessed phenomenal growth over the past few years. According to Cafemutual, mutual fund assets under management (AUM) are now at ₹54 trillion, forming 31% of the total bank deposits, up from 24.2% just a year ago.

Why is this shift happening? Two major reasons:

1. Higher potential returns: Equity mutual funds have historically delivered 12%-14% CAGR returns over the long term, compared to bank deposits offering around 6.5%-7.5% interest rates.
2. Inflation-beating growth: Mutual funds, especially equity and hybrid funds, have the ability to beat inflation, unlike fixed deposits whose returns may barely match rising costs.

Why People Still Prefer Bank Deposits

Despite lower returns, bank deposits remain popular for:

• Capital safety (covered under RBI’s ₹5 lakh deposit insurance)
• Guaranteed returns
• Liquidity with minimal risk

But here’s the catch: FDs don’t create wealth in the long term. They only preserve money with marginal growth. ‘

see also: Punjab & Sind Bank FD Interest Rates Revised

Understanding SIP: Should You Stop or Continue?

Systematic Investment Plans (SIPs) are like a disciplined piggy bank that automatically invests your money every month into mutual funds. In February 2025, SIP inflows hit an all-time high of ₹25,999 crore.

Reasons to Continue SIP:

1. Rupee-Cost Averaging Works in Your Favor

When markets fall, SIPs help you buy more units at lower prices. When markets recover, these accumulated units generate higher returns.

Example:
If you invest ₹10,000 monthly, during a market dip, you’ll get more units. Over time, the average cost per unit decreases, improving overall returns.

2. Power of Compounding

The longer you stay invested, the more you benefit from compound growth. Stopping SIPs in a downturn can reduce your compounding effect.

3. Avoiding Emotional Decisions

Markets are volatile. Trying to time entries and exits is risky. SIPs encourage consistent investing, avoiding panic-driven decisions.

When Might You Consider Pausing SIP?

While SIPs are generally advisable, you might consider pausing if:

• You face a genuine financial emergency
• You need funds for short-term goals within 1-2 years
• You are nearing retirement and prefer shifting to safer avenues like debt funds or deposits

However, in most cases, it’s better to continue SIPs and stay invested for long-term goals.

A Step-by-Step Guide: How to Balance Bank Deposits & Mutual Funds

Step 1: Define Your Financial Goals
Short-term (1-2 years) → Bank deposits or liquid funds
Long-term (5+ years) → SIP in equity mutual funds

Step 2: Assess Risk Appetite

• Risk-averse → Consider hybrid funds, large-cap funds + FDs
• Risk-tolerant → Consider equity funds, mid-cap funds via SIPs

Step 3: Diversify
Don’t put all eggs in one basket. Allocate:

• 30%-40% in safe instruments (FDs, PPF, debt funds)
• 60%-70% in growth instruments (mutual funds, equities)

Step 4: Review Annually
Market conditions, interest rates, and personal circumstances change. Rebalance investments accordingly.

see also: Post Office MIS This scheme will make you rich

Bank Deposit vs Mutual Fund Investment FAQs

1. Are Mutual Funds safer than Fixed Deposits?

No. Fixed deposits offer capital protection with guaranteed returns, while mutual funds carry market risks. However, mutual funds can offer better long-term returns.

2. Should I stop my SIP during a market crash?

No. It’s recommended to continue SIPs. You accumulate more units at lower prices, which improves returns over time.

3. What happens if I pause my SIP temporarily?

Your mutual fund units remain intact, but you lose the benefit of disciplined investing and rupee-cost averaging.

4. Can I switch from SIP to a lump sum investment?

You can, but SIP is better for mitigating market timing risks. Lump sum investments are riskier in volatile markets.

5. How much should I invest in Mutual Funds vs FDs?

Depends on goals:

• Short-term & emergency funds → FDs, savings
• Long-term wealth creation → 60%-70% in mutual funds via SIPs