MIS vs FD - Which Investment Option is Best for You?

Don't know whether to invest in Fixed Deposits (FDs) or Monthly Income Schemes (MIS)? Here’s a comparison between the two options to help you decide who wins the investment battle.
4 mins
26 August 2023

A fixed deposit is a financial instrument that allows you to lock in your savings for a period and offers a fixed return for the duration of the deposit. A monthly income scheme or MIS is a financial deposit that requires the investor to first pool the money with a lender, and then earn returns, which are shared every month.

Both investment types have their advantages and disadvantages. Depending on your financial portfolio, you can choose the ideal option by considering some important factors.

Here’s what you need to know:

1. Surety of earnings

An FD offers a fixed rate of return, which is predetermined before investing in the deposit. You can use a fixed deposit interest calculator to gauge the correct amount due on your FD’s maturity. You are therefore clear on the maturity value of the fixed deposit before investing.

For a prudent investor, a fixed deposit will continue to be the best investment option considering its safety and ease of liquidity.

Most monthly income investment plans are also invested into equity and therefore no certainty on returns can be provided. Thus, you cannot know what your gains will be at the time of investing.

2. Risk calculation

A fixed deposit offers the lowest risk of any investment option, whereas an MIS almost always carries some risk as a portion of the investment is in equities. On the plus side, you may get better than expected returns based on how the equities perform.

As an investor, you need to know that return is inversely proportionate to the risk taken. In the case of an FD, which offers a fixed return, the risk is low—almost non-existent. However, in a monthly income scheme, the risk is higher due to equity investment.

3. Cash earnings

The earnings from a fixed deposit will remain constant and are predetermined. The cash flow earnings from an MIS can vary over time as the earnings vary with market fluctuations. So, if you are looking to get surety in terms of interest, an FD is right for you. If you are open to ups and downs in the money you make, choose an MIS.

4. Payouts

While a fixed deposit locks your money for a set period, you are free to withdraw the principal from the fixed deposit at any time with a penalty charge. At the time of withdrawal, you will also receive the interest earned up to the date of withdrawal of the FD. In an MIS, you get a monthly return and most MIS come with a fixed lock-in period with a penalty for withdrawals before maturity.

Ideally, a monthly income scheme is best for an investor who has an appetite for high risk and doesn’t require liquidating the corpus over the tenor. When the investment needs dictate that funds may be required at short notice, the MIS investor will take a hit on the payout.

On the contrary, a fixed deposit is a safe investment, offers a slightly lower return in some cases, but is backed as being the most secure investment. Further, you are free to withdraw the money when required and still earn a return up to the time of withdrawal, albeit by paying a penalty.

Frequently asked questions

What are the popular Monthly Income Schemes?

Popular Monthly Income Schemes include Post Office Monthly Income Scheme (POMIS), bank fixed deposits with monthly interest payout, and certain mutual funds designed for regular income.

What is the Post Office Monthly Income Scheme interest rate?

The interest rate for the Post Office Monthly Income Scheme (POMIS) may vary but is generally competitive. It's important to check with the post office for the current rate.

How do I withdraw my MIS interest?

In the Post Office Monthly Income Scheme (POMIS), the interest is paid out monthly or credited to your savings account. You can withdraw it at the post office through cash or transfer it to your bank account.

Can I close MIS before maturity?

Yes, you can close your Monthly Income Scheme before maturity, but there might be a penalty for premature withdrawal. The exact terms and conditions vary among different schemes and institutions.

Which is better Fixed Deposit or MIS?

The choice between a Fixed Deposit (FD) and Monthly Income Scheme (MIS) depends on your financial goals. FDs offer a lump-sum payout on maturity, while MIS provides regular income. Assess your needs and risk tolerance before deciding which is better for you.

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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.