There are different types of investors. Some like to take on high risks in the hope of high returns, while others prefer to keep a low-risk profile even at the cost of comparatively lower returns. The decision to invest in a particular product also depends on your goals, income, and investment horizon. Mutual funds and fixed deposits have been two of the most popular investment options in the country. Both these financial tools enjoy immense popularity and can serve different purposes. Here are some differences between the two that can help you pick one for your unique financial goals and future needs:
Seven differences between mutual funds and fixed deposits
Points of difference | Mutual funds online | Fixed deposits |
Returns | The returns from a mutual fund depend on market performance and are neither fixed nor guaranteed. The returns can differ for debt and equity funds and range from 5-6 % to 11-13%. | While returns are guaranteed, they are usually low, with most banks offering between 4.5% to 6.5% on an average. |
Risk | The risk component in mutual funds depends on the type of mutual fund you choose. Debt funds offer lower risk, while equity funds are known to carry high risk. | The risk involved is zero. You will receive your money along with the accumulated interest at the time of maturity. There are no surprises, and you get guaranteed returns. |
Taxation | Mutual funds online are taxed as per short-term and long-term capital taxation rules. While STCG is taxed at 15%, LTCG has taxed 10% for earnings above Rs. 1 lakh. | The interest earned on a fixed deposit is added to your total taxable income at the end of the year and charged per the tax slab you fall into. |
Expenses | Mutual funds charge an amount called the expense ratio, which is paid to the fund manager. | Fixed deposits have no separate management charges. |
Contributions | You can invest in a mutual fund in a lump sum or through a SIP (Systematic Investment Plan). | You can invest in a fixed deposit through a one-time lump sum payment only. |
Withdrawals | Mutual funds are highly liquid. You can withdraw your money anytime you like. However, you may have to pay a fee of approximately 1% as the exit load. | Fixed deposits are long-term savings tools, and early withdrawals result in a penalty. If you are looking for high liquidity, these may not be the best option. |
Regulated by | Mutual funds are regulated by the Securities and Exchange Board of India (SEBI). | Fixed deposits are regulated by the Reserve Bank of India (RBI). |
To sum it up
Fixed deposits and mutual funds are both excellent options for future savings. They can benefit you in different ways. While mutual funds can offer you better returns and high liquidity, a fixed deposit can provide you with peace of money and more financial security. So, make sure to invest in them wisely on the Tata Capital Money app.