FD vs Mutual Funds: Which Is the Better Investment Option?

Fixed Deposit offer safe, fixed returns ideal for capital protection and short-term goals, while Mutual Funds invest in market-linked assets with higher risk but better long-term growth potential.
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FD vs Mutual Funds: Which Is the Better Investment Option?
OPEN FD
4 mins
24-June-2026

Fixed deposits (FDs) are among the most preferred savings and investment instruments. They allow you to invest a lump sum for a fixed tenure and earn a predetermined rate of interest. Since the returns are fixed and not affected by market fluctuations, FDs offer stability and predictable earnings on your invested amount.

Mutual funds, on the other hand, pool money from multiple investors and invest it across various asset classes such as equities, bonds, and other securities. These investments are managed by professional fund managers who aim to generate returns by selecting and managing a diversified portfolio based on the fund’s investment objective.

What is a fixed deposit?

A Fixed Deposit is one of the most secure ways to grow your money. You deposit a lump sum for a chosen tenure and earn a fixed interest rate throughout. Since FD returns are not linked to the market, your money grows steadily and risk-free.

What are mutual funds?

Mutual Funds pool money from multiple investors to create a diversified portfolio of stocks, bonds, or other assets. These funds are managed by professionals, but returns fluctuate with market conditions. While they can deliver higher gains over the long term, they also carry higher risks compared to FDs.

Fixed Deposit

  1. Trusted by over 5 lakh customers
  2. Fixed Deposits worth more than Rs. 50,000 crore booked
  3. Rated CRISIL AAA/STABLE and [ICRA]AAA(STABLE)
  4. Up to 0.35% p.a. extra interest offered for senior citizens
  5. Flexible interest payout options available - Monthly, Quarterly, Half-yearly, Annually or at Maturity

By proceeding, you agree to our Terms and Conditions

Benefits of investing in fixed deposits and mutual funds

Both options come with unique advantages:

  • Mutual Funds: Higher potential returns, liquidity, and diversification across assets.
  • Fixed Deposits: Stability, assured returns, and complete immunity from market risks.

While mutual funds are subject to market swings, Bajaj Finance FDs offer AAA/STABLE ratings by CRISIL and ICRA, ensuring your investment is one of the safest in the country. Open FD.

Comparison Between Fixed Deposits and Mutual Funds

Fixed Deposits (FDs) and Mutual Funds are widely used investment options in India, but they differ in terms of investment structure, risk, returns, and taxation. Here is a comparison:

Nature of investment

Fixed Deposits:
An FD is a savings instrument where you deposit a fixed amount with a bank or financial institution for a predetermined tenure. In return, you earn interest at a rate fixed at the time of investment.

Mutual Funds:
Mutual funds pool money from multiple investors and invest it across various asset classes such as equities, bonds, and money market instruments. Professional fund managers oversee these investments to achieve the fund’s objectives.

Risk profile

Fixed Deposits:
FDs are generally considered low-risk investments because they provide assured returns irrespective of market movements. Since they are offered by regulated banks and financial institutions, the risk of default is relatively low.

Mutual Funds:
Mutual funds carry varying levels of risk depending on the underlying assets. Their performance is influenced by market conditions, making returns uncertain. Investors may face higher risks compared to FDs, particularly in equity-oriented schemes.

Returns

Fixed Deposits:
FDs offer predetermined returns that remain unchanged throughout the tenure. While they provide stability and predictability, the return potential is generally lower than market-linked investments.

Mutual Funds:
Mutual funds have the potential to generate higher returns over the long term due to exposure to market-linked securities. However, returns are not guaranteed and depend on the performance of the fund’s portfolio.

Taxation

Fixed Deposits:
Interest earned on FDs is taxable according to the investor’s income tax slab. Tax Deducted at Source (TDS) may apply if annual interest exceeds the prescribed threshold. Individuals with taxable income below the exemption limit may submit the relevant declaration forms to avoid TDS deduction.

Mutual Funds:
Tax treatment depends on the type of fund and the holding period. Gains from equity-oriented funds are taxed differently from debt-oriented funds, with applicable rates determined by prevailing tax regulations and the duration for which the investment is held. Investors should refer to the latest tax provisions before making investment decisions.

Difference between fixed deposits and mutual funds

Here is a comparison between debt mutual funds which are considered safer options as compared to hybrid or equity funds and FDs:

Parameters

Fixed Deposits (FDs)

Mutual Funds (MFs)

Returns

Assured, pre-defined interest

Linked to market performance

Risk level

Very low

Ranges from low to high based on the scheme

Costs involved

No charges

Includes an expense ratio

Liquidity

High

Generally high, subject to exit terms

Investment amount

Minimum amount required; usually no upper limit

Minimum amount required; usually no upper limit

Tenure

Ranges from 7 days to 10 years

No fixed tenure; investor-defined

Tax treatment

Taxed as per applicable rules

Taxed as per applicable rules

Fund management

Does not require professional management

Managed by a fund manager

Flexibility

Limited; premature withdrawal may attract penalty

High; wide variety of schemes available

Regulatory authority

Regulated by the Reserve Bank of India (RBI)

Regulated by the Securities and Exchange Board of India (SEBI)


Want to avoid hidden costs? Unlike mutual funds that charge expense ratios, Bajaj Finance FDs come with zero additional charges—you get what you’re promised. Check eligibility and invest in FDs now!

Also Read: Difference Between VPF, EPF, and FD

Fixed deposit variants

Highest Credit Ratings | Trusted with over 1.4 million Deposits | Assured Returns on FD
Recommended

Fixed Deposit - 60 Months

INTEREST RATES UP TO
7.75% p.a.
Invest Online

Fixed Deposit - Senior Citizen

INTEREST RATES UP TO
7.75% p.a.
Invest Online

Fixed Deposit - Age below 60

INTEREST RATES UP TO
7.40% p.a.
Open FD

Fixed Deposit - Minor

INTEREST RATES UP TO
7.40% p.a.
Open FD

Fixed Deposit - HUF

INTEREST RATES UP TO
7.40% p.a.
Open FD

Fixed Deposit - Sole Proprietor

INTEREST RATES UP TO
7.40% p.a.
Open FD

Who can invest in fixed deposits and mutual funds?

  • Risk-Averse Investors: FDs suit those seeking guaranteed, stable returns with minimal risk, while mutual funds—especially equity funds—carry market volatility.
  • For Regular Income: FDs are ideal for predictable interest payouts. Mutual fund returns fluctuate and are not suitable for fixed monthly income.
  • Short-Term Goals: FDs work well for short-term targets due to capital safety. Equity-based mutual funds are riskier and need time to grow.
  • Tax Efficiency: Mutual funds generally offer better tax benefits through long-term capital gains, whereas FD interest is fully taxable.
  • Long-Term Wealth Creation: Equity mutual funds are better for long-term growth, while FDs often struggle to beat inflation over time.
  • Need Quick Liquidity: Open-ended mutual funds provide easier access to money; FDs charge penalties for premature withdrawals.

Also Read: Difference Between ELSS vs FD

Conclusion

Both FDs and mutual funds have their place in your financial plan. But if you want an investment that guarantees growth, keeps your money safe, and offers complete flexibility, Bajaj Finance Fixed Deposits are a smarter choice. With high safety ratings, competitive returns, and easy online booking, you can invest confidently and watch your savings grow. Open FD.

Frequently asked questions

What is the minimum amount needed to start a Bajaj Finance FD?

You can start your investment journey with just Rs. 15,000, making it accessible and easy to build disciplined savings.

Is it possible to withdraw the FD amount before maturity?

Yes, you can withdraw the FD amount before maturity. However, most financial institutions charge a penalty for early withdrawal.

Can I open my FD online?

Bajaj Finance Fixed Deposit offers each customer a chance to open their FD without any hassle online through their website. You can register on the website, complete the KYC, and start your Fixed Deposit in just a few minutes.

Is FD better than sip?

In a fixed deposit, you invest a lump sum amount at once. However, with SIP, you make small monthly investments. However, SIP is a risky investment, while a fixed deposit offers profitable returns without any risk.

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Disclaimer

As regards deposit taking activity of Bajaj Finance Ltd (BFL), the viewers may refer to the advertisement in the Indian Express (Mumbai Edition) and Loksatta (Pune Edition) furnished in the application form for soliciting public deposits or refer https://www.bajajfinserv.in/fixed-deposit-archives
The company is having a valid Certificate of Registration dated March 5, 1998 issued by the Reserve Bank of India under section 45 IA of the Reserve Bank of India Act, 1934. However, the RBI does not accept any responsibility or guarantee about the present position as to the financial soundness of the company or for the correctness of any of the statements or representations made or opinions expressed by the company and for repayment of deposits/discharge of the liabilities by the company.

For the FD calculator the actual returns may vary slightly if the Fixed Deposit tenure includes a leap year.