Fixed Deposits vs Mutual Funds - Know the Difference

Where to invest?

When it comes to saving money, Fixed Deposits (FDs) are the most preferable option for the investors. The reason being, it is one of the oldest saving instruments and deemed to be the safest with a fixed rate of return.

But is it still the most appropriate investment option in the current times? Does it still provide the best returns? Or there are other investments like Mutual Funds that provide greater returns and help achieve a goal in a better way?

Read on to know which one out of Mutual Fund vs. Fixed Deposit is a better investment option.

FD or Mutual Fund

FD, also known as Fixed Deposit, is a popular saving instrument provided by banks for short-term and long-term investments. The rate of return on FDs is fixed and pre-decided by the Government of India; hence the growing inflation doesn’t impact the return on these investments. Notably, the FD returns are taxable for the investors but the FD investments are eligible for tax deductions under Section 80C of the Income Tax Act.

Mutual Funds, on the other hand, are market-based investment instruments with no fixed rate of return. However, during the long run, they have been observed to give 10-15% return, which is pretty higher than that given by FDs. There are 3 types of Mutual Funds – Debt, Equity and Balanced.

Debt Mutual Fund invests a majority of the investment amount in government bonds, corporate bonds, and securities and the rest of the amount in equity markets whereas Equity Mutual Funds invest more in the equity market and lesser in government bonds, corporate bonds, and securities. Balanced Mutual Funds invest partially in both Debt and Equity Funds.

Difference between FD and Mutual Fund

It is still a question whether to invest in a Mutual Fund or in a Fixed Deposit. The following comparison of Mutual Fund vs. Fixed Deposit is based on certain parameters that might help you make a decision.

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