It is difficult to decide whether to invest in a deposit or mutual fund. Both differ in terms of features, benefits, eligibility criteria, market risk and other factors. Fixed deposits are subject to little or no market risk, whereas mutual funds are subject to market forces. Banks provide fixed deposit services, while fund houses or asset management companies provide an opportunity for individuals to invest in mutual funds.
There are many differences between mutual funds and fixed deposits that should be considered before deciding to invest. This blog will explain the difference between FD and mutual funds, as well as the best investment options for you.
What is Fixed Deposit Account?
Fixed deposits, also known as ‘term deposits’ or ‘term deposits,’ are investment products offered by banks and non-banking financial institutions (NBFCs). It is the safest investment instrument among many instruments as it allows the user to deposit an amount of money at once with a financial institution for a certain period of time. Apart from that, FD provides users with a number of other features like-
- You can earn interest on the deposited amount for a predetermined period of time, according to the pre-locked interest rate
- Once locked, interest rates are not affected by market fluctuations or interest rates
- You can earn interest either on a regular basis or when your FD matures
- The fixed deposit amount cannot be withdrawn before the due date, and if a person wants to withdraw the amount, he has to pay a fine
What are the Benefits of a Fixed Deposit Account?
Fixed deposit accounts offer several advantages that distinguish them as a unique and risk-free investment option:
- Fixed deposits are considered the safest option because interest rates do not fluctuate with changing market conditions
- Banks offer guaranteed interest rates on fixed deposits and depositors can check the interest they will receive via the FD calculator available on the bank’s website
- A large number of banks offer tax-saving fixed deposit options
- A depositor can open a fixed deposit account both offline and online by following a few simple steps similar to opening an FD account with Paytm Payments Bank
- Banks allow depositors to reinvest the amount of FD after maturity, enabling depositors to earn compound interest on principal
- Fixed deposits offer flexible tenors from 7 days to 10 years
- Banks make it easier for depositors to get loans with the value of their fixed deposits
Who Should Invest in Fixed Deposits?
The following individuals can open fixed deposit accounts:
- Someone who doesn’t want to take market risks
- Individuals with taxable income can invest in FD
- A retiree who wants a sustainable source of income can apply for an FD scheme
- Housekeepers with sufficient funds can compare various FDs and choose the best one for them
What is Mutual Fund?
Mutual funds are another type of investment instrument in which an asset management company or fund house collects investments from individual and institutional investors. The process is then completed when the investment manager buys securities such as bonds and stocks from the market in accordance with the investment mandate. Mutual funds are considered as one of the best ways to diversify an investment portfolio.
What are the Benefits of Mutual Funds?
Given below are a number of reasons one should or try to invest in mutual funds-
- Investment manager manages mutual fund investments
- Asset management company and fund house unite mutual fund investments
- No lockout period
- Mutual funds provide a fund plan, making them an attractive option for investors looking to achieve both short-term and long-term goals
- It is very easy to switch funds. If necessary, an investor can transfer his investment to a different fund within the same fund house
- Mutual funds are inexpensive, making them a convenient and great choice for small investors.
- Investments can be made through SIP (Systematic Investment Planning). SIP frequency can be monthly, quarterly or bi-annually
- The purchase and sale of mutual fund units is carried out at the applicable net asset value of the mutual fund program
- An investor can track their mutual fund investments
- The amount invested in mutual funds is ultimately allocated to various assets and shares of various companies
- Mutual funds provide two advantages: SIP and no lock-in period
- Mutual funds provide liquidity
- Mutual fund houses and mutual fund plans are regulated by the Securities and Exchange Board of India (SEBI) and the Reserve Bank of India (RBI)
Who Should Invest in Mutual Funds?
People who can invest in mutual funds are as follows:
- Anyone looking to achieve short or long term financial goals
- If you want to earn more money than a regular savings account
- Anyone looking to diversify their investment portfolio
Comparative Difference between FD vs Mutual Fund
The following points define the comparative difference between FD vs Mutual funds-
|Criteria||Fixed Deposit||Mutual Funds|
|Return||Fixed and guaranteed returns||Depends on market conditions|
|Expenditure||No fees are incurred during the term of office||Carry certain fees and expenses that are deducted to manage funds|
|Stake||No risk||Risk varies from fund to fund
Affected by market conditions
|Withdrawal||Withdrawing funds prematurely is allowed
Penalties must be paid by the user for premature withdrawal
|The amount can be withdrawn after a certain point of time|
|Who can invest?||People who don’t want to take market risks
People with taxable income
A retiree who wants to have a steady source of income
Housekeeper with decent money in hand
|Someone who wants to achieve short or long term financial goals
Anyone who wants to diversify their investment portfolio
People who are willing to get a higher return compared to a regular savings bank account
|Offered by||Banks and financial institutions||Asset management company
|Liquidity||Medium to high liquidity||Very liquid|
|Organized by||Reserve Bank of India||Indian Securities and Exchange Board|
FD vs Mutual funds- the best choice to invest?
Before investing in an FD or mutual fund, it is best to review all features, benefits, limitations, risk factors, short and long term financial goals, liquidity and other factors. After comparing the basic differences between FDs and mutual funds, the next step is to compare different banks, asset management companies, and fund houses in terms of services, fund management practices, and so on. The final step before deciding on the best investment instrument is to understand the market conditions and your personal needs.
Is it possible to withdraw an FD amount before maturity?
Yes, if an emergency fund is needed, the depositor can withdraw the funds after paying the fine.
Can I open my FD online?
Yes, customers can open FD online by logging into the bank’s online portal.
How to make a Paytm Payment Bank fixed deposit?
Enter the Paytm application, select Paytm Bank, then Make a Fixed Deposit. Enter the amount and click on Make Paytm Payment Bank Fixed Deposit.
What is the current mutual fund interest rate?
Mutual fund interest rates vary depending on the fund’s house and asset management company.
Can a salaried professional invest in mutual funds?
Any individual who wants to invest in the market or wants to achieve short and long term financial goals can invest in mutual funds.