Fixed Deposits vs Mutual Funds - Check Difference between FD Vs Mutual Funds
As popular investment vehicles, fixed deposits 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 tenure. 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 tenures, 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. In case of Fixed Deposit, the TDS on interest earned from fixed deposit for the Financial Year 2020-21, shall now be deducted at 7.5% if the interest income exceeds Rs. 5,000 during the financial year, with effect from May 14, 2020. However, this deduction is not applicable for those depositors who have not submitted their PAN.
Difference between Fixed Deposit and Mutual Fund
When you go to a public sector, private bank or a non-banking finance company (NBFC) to open an FD
, you are informed about the rate of interest it will fetch on maturity, in advance. This rate of interest written is guaranteed and cannot be altered or changed.
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:
|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
||Managing mutual funds carries certain charges, deducted for fund management
||No additional expenses over the course of initiation or tenure of deposit
||Any time withdrawal (Albeit with exit loads of 1% or more)
||Easy withdrawal post completion of minimum lock-in period
||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.