Fixed Deposit VS Mutual Funds – Where to Invest | Bajaj Finance
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Fixed Deposit vs Mutual Funds

Fixed Deposit vs Mutual Funds – Here’s the difference between FD and Mutual Funds

As popular investment vehicles, fixed deposit and mutual funds have enabled investors to grow their savings easily. However, the benefits offered by both these avenues vary in terms of your investment needs. Hence, before choosing where to invest, it is best to know about both these investment avenues in detail.

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What is Fixed Deposit?

As one of the safest investment avenues, fixed deposit can help you get assured returns on your deposit. You can deposit a lumpsum amount that accrues a fixed interest over a predetermined tenor. In fixed deposits, there is no pooling of money by a group of investors, and interest is decided before you invest, so the returns remain unaffected by external market influences.

Also Read: What is a Fixed Deposit?

What are Mutual Funds?

A mutual fund is a financial instrument, which is made up of a portfolio of stocks, bonds, equities, and other market-linked instruments or securities. Several investors come together to invest in mutual funds, with a common goal of increasing their savings. The total income earned through these investments is then, equally distributed among investors, after deducting the expenses incurred.

Benefits of investing in Fixed Deposit and Mutual Funds

  • Mutual funds have lock-in periods depending on the type of fund you choose, and you can exit when you wish to. Similarly, for fixed deposits, you can keep your money with the fund for 1–5 years.
  • But, whether you opt for mutual funds or fixed deposit, it is beneficial to invest for the longer haul. You may not be able to earn high returns on choosing short tenors, i.e. less than a year.
  • In case of mutual funds, any gains you make before the year ends are taxed as short-term capital gains tax. If the interest on your Fixed Deposit exceeds Rs.10,000 in a financial year, TDS of 10% is deducted if you have provided your PAN details. Note that TDS is deducted at a higher rate if PAN details aren’t provided.

Difference between Fixed Deposit and Mutual Funds

The rate of interest locked in at the time of deposit remains constant for an FD, throughout the chosen tenor. However, this is not the case with Mutual Funds.

Although the interest you make in mutual funds may be higher than fixed deposits, there is no assurance that this will remain constant. So unlike fixed deposits, gains in mutual funds are neither constant nor uniform. This is because equity mutual funds are subject to volatility in the stock market. So, every mutual fund comes with a fine print, which states that investment in mutual funds is subject to market risks.

The choice of whether you want to invest in a mutual fund or a fixed deposit is ultimately dependent on your risk appetite.

To help you understand the differences between Mutual Fund and Fixed Deposit, here's a table below:

Particulars Mutual Fund Fixed Deposit
Assurance of returns No assurance of guaranteed returns Highest assurance of guaranteed returns
Impact of market fluctuations Returns may move up and down, as per market movements Returns remain unaffected by market forces
Risk involved High Low
Expenses Managing mutual funds carries certain charges, deducted for fund management No additional expenses over the course of initiation or tenor of deposit
Withdrawal Any time withdrawal (Albeit with exit loads of 1% or more) Easy withdrawal post completion of minimum lock-in period
Taxation All mutual funds are subject to short-term and long-term capital gains tax. TDS deduction at 7.5% if the interest income exceeds Rs. 5,000 during the financial year

Thus, for those seeking a safe, low-risk investment, it is better to opt for fixed deposits. Bajaj Finance Fixed Deposits offer stable and assured returns with the best fixed deposit interest rates.

With the highest safety ratings of FAAA by CRISIL and MAAA by ICRA, Bajaj Finance is one of the safest FD issuers for you. You can also reap the benefit of lucrative interest rates and the flexibility to invest from the comfort of your home.

Make a smart investment choice with a Bajaj Finance Fixed Deposit, and start investing with just Rs. 25000.

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