fd vs mutual fund

How are Fixed Deposits and Mutual Funds Different?

Published on March 20, 2019 By , 0 Categorised in:

The topic of Fixed Deposit (FD) vs. Mutual Funds has been a debatable topic for a long time. Financial experts suggest people who have a moderate risk appetite choosing mutual funds over fixed deposits and for people who have low-risk appetite, choosing FD over mutual funds. Bank FDs were considered to be the most secure platform to invest in an FD. However, with the establishment of credit rating agencies for Non-Banking Financial Companies (NBFCs), you can now invest in non-banking financial institutions with high security. Companies with high credit rating reflect high stability, low chance of defaulting, and security of the invested money. Before investing your hard-earned money, you need to make informed decisions after looking into all the factors involved in the process. To break the ice, below are a few points to differentiate between FD and Mutual Funds

Mutual Funds FD
Investment is made in debt, equity, bond, etc. by a group of investors Investment is made in an account by a single individual
The income earned is distributed equally to all the investors after deducting the expenses incurred The principal amount along with interest earned is returned to the investor after maturity
Mutual funds have lock-in periods depending on the chosen fund type There is no lock-in period in an FD, and the investment is made for tenor ranging from 7 days to 10 years
Any earning before the completion of a year is deducted as a short-term capital gains tax Any earning that exceeds Rs. 10,000 is taxed at 10% of the total sum
The returns are based on market rates FD interest rates are based on the type of customer, type of FD, the amount deposited, and the tenor
The returns are not secured, and the chances of risking the invested money are high The returns are guaranteed, and the chances of risking the invested money are negligible

Be it mutual funds, be it fixed deposits; it is advisable to invest for the long term. In the case of mutual funds, long-term investment can save you from capital depreciation. In case of fixed deposits, you can earn higher interest rates on FD with long term investments as compared to short-term investments. When investing in an FD, you can calculate the FD interest rates as well as the maturity amount using the online FD calculator. On the other hand, investing in a mutual fund does not reflect the exact returns you might receive after a certain period. Additionally, in case of inflation, there are chances that you lose your invested money in mutual funds.

What is the Right Choice?

If you have good financial health, you can choose to invest in mutual funds for high returns. However, if you have weak financial health, it would be advised not to risk your money. However, if you have stable financial health, you can choose to diversify your portfolio by investing in mutual funds as well as in fixed deposits. You can choose to diversify your investment in various instruments of mutual funds for earning high returns and secure a portion of your savings in high-yielding fixed deposits. For high-yielding FDs, you can invest in one of the leading NBFCs of India, Bajaj Finance. You can enjoy some benefits of staying invested in FD with Bajaj Finance, such as:

    • High-interest rates and guaranteed returns without the influence of market rate fluctuations
    • High credibility with FAAA and MAAA stable rating from CRISIL and ICRA respectively
    • Quick online application procedure with minimal documentation
    • Online management of FD account with the ‘Experia’ portal
    • Availability of loan against FD in case of emergencies with flexible repayment option
    • Flexibility in selecting the FD tenor from 12 months to 60 months
    • Option to invest a sum as low as Rs. 25000
    • Availability of cumulative and non-cumulative FD including the option to select the frequency of the interest payout on a monthly, quarterly, half-yearly, and yearly basis
  • Option to calculate the FD interest rates using the online FD calculator

The decision making choice of FD vs. Mutual Funds is based on your risk appetite and financial health. You need to invest your time in quality research and make an informed decision accordingly.

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