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Mutual funds vs. fixed deposits


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. Investing 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:

Mutual funds

Seven differences between mutual funds and fixed deposits

Points of differenceMutual funds onlineFixed deposits
ReturnsThe 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 an average of 4.5% to 6.5%.
RiskThe 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. At maturity, you will receive your money along with the accumulated interest. There are no surprises, and you get guaranteed returns.
TaxationMutual funds online are taxed according to short-term and long-term capital taxation rules. For earnings above Rs. 1 lakh, STCG is taxed at 15%, and LTCG is taxed at 10%.The interest earned on a fixed deposit is added to your total taxable income at the end of the year and charged according to your tax slab.
ExpensesMutual funds charge an amount called the expense ratio, which is paid to the fund manager.Fixed deposits have no separate management charges.
ContributionsYou can invest in a mutual fund lump sum or through a SIP (Systematic Investment Plan).You can only invest in a fixed deposit through a one-time lump sum payment.
WithdrawalsMutual 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 byMutual 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, invest wisely in them using the Tata Capital Money app.

Geneva A. Crawford
Twitter nerd. Coffee junkie. Prone to fits of apathy. Professional beer geek. Spent several years buying and selling magma in Miami, FL. Spent a year lecturing about psoriasis in Las Vegas, NV. Managed a small team writing about circus clowns in Las Vegas, NV. Garnered an industry award while writing about lint in the financial sector. Spoke at an international conference about getting my feet wet with dust in Libya. Spoke at an international conference about researching rocking horses in Bethesda, MD.