When is it good to shift mutual fund investment into a fixed deposit?
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When is it good to shift mutual fund investment into a fixed deposit?

  • Highlights

  • Shift to FDs if you have a low risk appetite

  • To build a safety net for retirement, rely on both

  • Create a balanced portfolio with FDs & mutual funds

  • Assess your need for finance in the future before deciding

Whether you are a seasoned investor or have recently started your investment journey, weighing your investment options is a wise move. It will allow you to evaluate different schemes and find ones that work for your situation.

While you carry out this exercise, you may come face to face with the decision of choosing between mutual funds and fixed deposits and deciding whether you should move your funds from the former to the latter. Since both options have their own benefits to offer, it is important to analyse them, along with your own needs and goals before planning.



Focussing on the following aspects will help you decide if now is a good time for you to shift from mutual funds to FDs.

Your risk appetite

Mutual funds are a high-risk investment option because they are directly linked to the market. On the other hand, FDs are safe investment instruments as they are free of market influences. So, if you find that your risk appetite is low and you want to re-align your investments accordingly, it is better that you shift from mutual funds to fixed deposits.
On the other hand, if you feel like you must take calculated risks to further your wealth and have in place a substantial monthly income to fall back upon, continue investing in mutual funds.

Your goals for retirement

Planning for retirement is important because it is a period when your savings will become your source of regular income. So, when planning for post-retirement life, building a high corpus is imperative.
It will allow you to maintain your quality of life even once you quit the workforce. If you’re approaching retirement however, it is a good idea to play it safe and transfer your money from mutual funds to cumulative and/ or non-cumulative FDs. But, if you’re taking on this exercise in your 20s, you have a longer period at your disposal. Based on the amount you want to invest, you can invest in both options to secure your future.

Your existing portfolio

Before making a decision it is important to review your portfolio. For instance, if your existing portfolio doesn’t have any low-risk investment options, it is important to balance out the risk. In this scenario, allotting a percentage of your total funds to an FD will benefit you. It will provide a safety net in case your high-risk investments fail you.
Similarly, not taking calculated risks means that your investment corpus will never achieve its true potential. So, dedicate a small portion of your portfolio to mutual funds to make the most of the substantial returns that they offer.

Should you invest in Mutual Funds or Fixed Deposits?

Your need to raise additional funds

You can have varied needs for funds in the future such as paying for your child’s education, a wedding in the family, home improvement, and saving up to buy assets like a new car. In such a scenario, where you anticipate needing funds in the future, switching to an FD makes better sense. This is because you can count on your returns from an FD and avail a loan against your fixed deposit. This will allow you to access funds instantly, at a relatively reasonable rate of interest.
It isn’t true that one investment option is better than the other. What works for you may not work for your sibling or colleague. So, evaluate your unique situation before you make a decision about shifting your money from a mutual fund to an FD.

Also Read: Fixed deposits vs Mutual Funds

 

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