Which is Better? FD vs MF

In the current economic scenario of the country, most investors are willing to invest in the fields that can provide them with high returns. Nowadays, the prevailing market risks are mainly overlooked by many of them. In India, the financial market is quite vast and people can get different options for investing. Fixed deposit and mutual funds are two leading investment plans present in the country.

Here, the details about the salient features of fixed deposits and mutual funds are given. Moreover, a comparative study between FD and MF can help you to choose a suitable option.

Fixed Deposit and its features

A fixed deposit is an investment plan that is offered to all the investors by the nationalized banks, NBFCs and small finance banks. Common people generally have the tendency to choose a fixed deposit investment as it ensures guaranteed returns. Moreover, an investor can keep a lump sum amount of a fixed deposit as a security of a loan. It helps him to avail of some instant cash against the long term investment that he has made.

Mutual fund and its features

Mutual funds are another prominent means of investment that common people, as well as professional investors, choose. In the case of mutual funds, investments take place on the monetary commodities, also known assets. Some assets on which the investors can put their money on are shares, equities, and debt bonds. The market risks affect mutual fund investments in a prominent manner. So, the investors are expected to make strategies to avoid it. Mutual fund investments can be done in short, medium or long terms.

There are many mutual funds in the market that are managed by reputed MF pilots. However, the investors also get an option to invest in a mutual fund directly. Direct mutual fund investments done in a planned way can give more returns to you.

Comparative Study between a fixed deposit and mutual fund

There are a number of parameters on which both fixed deposit and mutual fund investment are compared below. This comparative study can help you to choose either of the two according to your preference.

Risk: When it comes to risk, fixed deposit investments are safer options than mutual fund investments. There are two reasons why FD investments are considered safe. Firstly, any amount kept in a fixed deposit account is not exposed to the money market and secondly, the interest rates are not variable in case of the fixed deposits.

On the other hand, the risk related to mutual fund depends upon the range of stocks that is present in each fund. These stocks are a part of the money market and they can be affected by the market risks.

Cost: Fixed deposit investments are cost-free as the organizations offering them do not charge any money from the investors. However, in the case of mutual fund investment, an investor needs to pay the company that provides the mutual fund. Moreover, fund managers also charge a certain amount of money.

Taxation: Both mutual fund investments and fixed deposit investments are taxable. The taxation process in case of mutual fund investment depends on the type of fund the investor has invested in. It also depends on the combination of return and term. In the case of a fixed deposit, the taxation happens on the returns. An investor has to pay the taxes according to the slab his investment returns fall in.

Premature WithdrawalIn case of premature withdrawal, mutual fund investments can be more cost-saving than the fixed deposit investment. In the case of the fixed deposit investment, the investor has to give a huge amount of penalty to the provider. Moreover, a decent fraction of returns is also deducted when an investor terminates a fixed deposit before the term.

Type of returns: Returns in case of fixed deposits and mutual fund investments are completely different. An investor can only get the returns in case of the FDs in one specific interest rate. On the other hand, the MF investment returns are variable as it can either increase or decrease with the condition of the market. An investor who has chosen a long term investment for a mutual fund might face a little loss with respect to the tenure of the investment.

As an investor, if you are looking for a safer option of investment with mediocre returns, fixed deposit investment is right for you. On the other hand, on being a professional investor who is comfortable dealing with the market risks, try choosing the mutual fund investment. Never forget to give a thorough read up of the terms and conditions associated with a specific scheme. Moreover, you can take suggestions from a market expert as it can help you to manage the mutual fund in a proper manner.

READ ALSO: How to make use of an FD Calculator?


What do you think?


Written by Bhavna Singhal

Years Of Membership


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