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The Fixed Deposit (FD) is a popular and preferred investment option among investors. Reasons – there is no risk, earn interest, save tax. Therefore, when a traditional investor is given the mutual funds option, they get into a dilemma, whether to invest in mutual funds or not?
So, here is a quick comparison between mutual funds and fixed deposits, which is better and why. The reason is that both investments are different on investment track, although common among investors.
What Is A Fixed Deposit?
In the fixed deposit, you invest a lump sum amount for a fixed tenure that ensues interest, which is pre-decided. In FD, the returns remain unaffected by the market fluctuation. Though you don’t earn enticing interest, you don’t lose anything either.
What Is Mutual Fund?
The mutual fund, on the other hand, is a financial instrument having a portfolio of bonds, equities, stocks and market-linked securities and instruments. In the mutual fund, multiple investors invest in a fund, and they all have a common aim, earning a good return on investment and growing their savings. After maturity, investors get their share of profit after the deduction of expenses incurred by them. The two investment options, mutual funds and FD have different qualities, and thus the benefits they offer also differ.
Mutual Funds or Fixed Deposit: What should you choose!
To help you understand both the avenues of investment let’s look at them piece by piece and understand their features.
What do you get when you invest in Mutual Fund?
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A mutual fund is a professionally managed product. The experts in the field with performance analysis of various industries create a suitable portfolio for investors.
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Mutual funds invest in equity, gold and in fixed income options.
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The thumb rule of investment is a diversified portfolio. Mutual funds are a pool of companies from diverse industries and sectors. Diversification reduces the loss risk.
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Over time, i.e. in long term investment, the mutual fund provides a higher return as they invest in different baskets of securities.
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Mutual funds are considered a low cost. If taken into account the overall cost, such as brokerage, fees and custodial charges, its cost is less than stocks.
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It is registered under SEBI and monitored by it regularly.
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In mutual funds, you can find products matching your requirements. You can invest and withdraw the amount from a mutual fund based on your needs
What do you get when you invest in Fixed Deposit Investment
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With the fixed deposit, you have the assurance of receiving the stated interest rate. The Bank and Post Office publishes the rate of interest they are offering on their website. According to their requirement, customers pick the product and invest money. It can be a recurring or lump sum.
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The fixed deposit comes in different tenures. Banks offer FD for various periods of time, however, it is always the customer who decides for what period they want to keep the money in FD.
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You can liquidate FD at any time but it comes with a cost. FDs come with a time-bound maturity and may charge you a penalty if you withdraw it prematurely. Some of them also have locked tenure.
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It is a dependable instrument. One can take a loan against FD easily. One can take a loan of up to 90% of the deposited amount.
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As far as the return is concerned FD will score low in front of mutual funds. The rate of interest in FD is low when compared to the return that mutual funds offer in a long term investment.
Both investments have their own advantages and disadvantages. The only thing that an investor should consider while choosing his/her investment is what is their goal, how much time they want to achieve it and how much risk can he/she take If he/she has a longer time horizon then they can choose an investment like a mutual fund but if he/she is risk-averse and prefers a fixed return then a bank FD is more viable.
