Do you know about mutual funds? Do you know about fixed deposits? Are there any differences between fixed deposits and mutual funds? If you are an investor and want to learn many more things about the financial markets, then there are multiple investment options available. The two investment options, mutual funds, and fixed deposits create a lot of confusion.
Mutual funds are the standard investment option, but when compared to Fixed deposits, then you will be wondering what the common fixed deposits are. Both investment work on separate investment tracks.
Before choosing anyone to invest in, you should know what the investment is, along with its benefits and drawbacks.
Fixed deposits are the safest investment option that helps you to earn good returns on your deposit. The returns from FDs are not affected by external market influences.
Mutual funds are investment option made up of a portfolio of bonds, stocks, securities, and other market-linked securities. Investors who want to increase their savings invest in mutual funds only.
Benefits of investing in FDs and Mutual Funds
- Mutual funds have a lock-in period based on the type of funds selected by you, and you can exit when wish. But in Fixed Deposits, you can keep your money in the fund for 1-5 years.
- Whether you are choosing mutual funds or fixed deposits, it is better to invest for the long term. If you choose short-term investment, you are unable to earn high returns on investments.
- In mutual funds, any gain made before the year ends is considered short term capital gain and is taxable. In the case of fixed deposits, the TDS is applied on the interest earned on the fixed deposit for the year.
Difference between the FD and mutual funds
- When you go to the bank or financial institution to invest in FD, they inform you about the interest rates that are fetched on the maturity, in advance. The written rate of interest is guaranteed and can not be changed later.
- On the other hand, the interest rates on mutual funds are higher than the interest rate on fixed deposits, and there is no guarantee that they will remain constant.
- It means that the gain in the mutual funds is not constant. This is the reason why equity mutual funds sometimes show volatility in the stock market.
- In simple terms, investments in mutual funds are subjected to high market risks compared to fixed deposits.
- The decision made by you to invest in an either fixed deposit or mutual funds is based on your risk appetite.
In the end, it is concluded that fixed deposits are the safest option and carry lower-risk for investors. They offer stable and assured returns with the FD interest rates.
It is suggested to read the complete article and make the smart investment choice, as per your requirements.