FD Vs Mutual Funds – Where to Invest Your Hard-Earned Money

Confused between fixed deposits and mutual funds? Discover which one is better suited for your financial goals and risk appetite.
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FD vs MF
OPEN FD
4 mins
19-May-2025

When it comes to investing your hard-earned money, there are seemingly limitless options available. Two popular choices among investors are fixed deposits (FDs) and mutual funds. Both FDs and mutual funds are investment vehicles that provide different benefits and drawbacks. While FDs are considered a safe and secure investment option, yielding low to moderate returns, mutual funds offer the potential for higher returns with greater risk. Mutual funds are professionally managed investment portfolios that pool money from multiple investors with similar financial goals. They offer diversification and exposure to multiple securities, including stocks, bonds, and money market investments.

Pro tip

Bajaj Finance offers attractive Fixed Deposit interest rates of up to 7.40% p.a. for non-senior citizens, and up to 7.95% p.a. for senior citizens, inclusive of an additional rate benefit of up to 0.55% p.a.

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Difference between fixed deposits and mutual funds

If you're an investor looking to learn more about the financial markets, you could come across multiple investment options. However, the two that have created maximum confusion are mutual funds vs FD. Mutual funds are a standard investment option, but when you compare them to fixed deposits, you'll be surprised at how common fixed deposits are. Both investments are on separate investment tracks. Before investing, one must first grasp what investment is and its benefits and drawbacks.

As popular investment vehicles, fixed deposits and mutual funds have enabled investors to grow their savings quickly. 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 in detail about these investment avenues.

What is a fixed deposit

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

What are mutual funds

A mutual fund is a financial instrument 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. After deducting the expenses incurred, the total income earned through these investments is equally distributed among investors.

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, you can keep your money with the fund for 1–5 years for fixed deposits.
  • Whether you opt for mutual funds or fixed deposits, it is beneficial to invest for the long haul. You may not be able to earn high returns on choosing short tenors, i.e. less than a year.
  • In the case of mutual funds, any gains you make before the year ends are taxed as short-term capital gains tax. In the case of fixed deposit, the TDS on interest earned from the fixed deposit for the financial year 2020-21. Rs. 5,000 during the financial year. This was put in effect from May 14, 2020.

Difference between fixed deposit and mutual funds

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 interest rate it will fetch on maturity in advance. This written interest rate 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.

Explore Life Insurance policies

In addition to the options mentioned, life insurance policies offer policyholders a dual benefit of savings and investment along with life cover. With growing awareness, these policies are becoming increasingly popular. Bajaj Finance Insurance Mall provides life insurance plans with coverage of up to Rs. 1 crore, offered by leading insurers. This platform serves as a comprehensive solution for all insurance needs, enabling you to compare and select the most affordable life insurance policy online. Secure your financial future and that of your loved ones with affordable premiums.

Debt Mutual Funds Vs Fixed Deposits

Particulars

Debt Funds

Fixed Deposits

Rate of returns

7%-9%

3%-10%

Dividend Option

Yes

No

Risk

Low to Moderate

Very Low

Liquidity

High

Moderate

Investment Option

Can choose either a SIP investment or a one-time investment

Lumpsum

Early Withdrawal

Allowed with or without exit load depending on the mutual fund type

Yes (with certain terms & condition)

Investment Expenditure

A nominal expense ratio is charged

No


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

With the highest safety ratings of AAA/STABLE and AAA(Stable), 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. 15,000. You can easily calculate your returns by using an FD calculator.

Fixed deposit variants

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

FD - Special Tenure -18 Months

INTEREST RATES UP TO
7.95% p.a.
Invest Online

FD - Special Tenure - 22 Months

INTEREST RATES UP TO
7.85% p.a.
Invest Online

FD - Special Tenure - 33 Months

INTEREST RATES UP TO
7.75% p.a.
Open FD

FD - Age below 60

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

FD - Senior Citizen

INTEREST RATES UP TO
7.95% p.a.
Open FD

FD – Minor

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

FDs vs Mutual Funds: Which Is Better?

The choice between Fixed Deposits (FDs) and Mutual Funds hinges on your financial goals, risk tolerance, and investment horizon. Fixed Deposits are a conservative choice, offering a secure avenue for capital preservation and a guaranteed return. On the other hand, Mutual Funds present a diversified investment approach across various asset classes such as equities and bonds. While they carry market-related risks, they offer the potential for superior long-term returns. Mutual Funds are often favored by those with longer investment horizons and goals like wealth accumulation or retirement planning. In practice, many investors strike a balance between the two, using FDs for safety and liquidity and Mutual Funds for wealth creation. Ultimately, the decision depends on your unique financial circumstances and objectives, and consulting with a financial advisor can help you craft a strategy that aligns with your goals.

Frequently asked questions

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.

What is the Digital FD offered by Bajaj Finance?

Bajaj Finance has launched a new FD type called "Bajaj Finance Digital FD" for a period of 18 months. Bajaj Finance is providing one of the highest interest rates of up to 7.95% p.a. for senior citizens and for the customers below the age of 60 they are providing up to 7.40% p.a. The Digital FD can be booked and managed only through the Bajaj Finserv website or app.

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Bajaj Finserv app for all your financial needs and goals

Trusted by 50 million+ customers in India, Bajaj Finserv App is a one-stop solution for all your financial needs and goals.

You can use the Bajaj Finserv App to:

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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.