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THE
ORANGE
HUB

Blog
2 mins Read | 5 Years Ago

Benefits of Investing in both Mutual Funds & Fixed Deposits

Mutual Funds or Fixed Deposits

 

An Overview of Mutual Funds (MFs) & Fixed Deposits (FDs)

Factors

Fixed Deposits (FDs)

Mutual Funds (MFs)

Returns

Fixed interest rate

Market-linked performance

Risk

No risk

Low to high, depending on the type

Expense

No expense

Entail an expense ratio

Liquidity

High

Generally high

Investment Amount

Specified minimum amount; often no maximum amount

Specified minimum amount; often no maximum amount

Tenure

From 7 days to 10 years

Often no fixed tenure; it depends on the investor’s preference

Taxation

Taxable as per the criteria

Taxable as per the criteria

Fund management

No fund manager is required

Requires a fund manager

Flexibility

Low, subject to a penalty

High, various types of schemes are available

Regulating authority

Reserve Bank of India (RBI)

Securities and Exchange Board of India (SEBI)

 

What are Mutual Funds and what are their benefits?

Mutual Funds (MF) pool money from multiple investors to invest in a diversified portfolio of stocks, bonds and other securities.

Mutual Funds Benefits

1. Diversification

By spreading your money across various investments, you reduce the risk of having all your funds in one place.

2. Professional management

Skilled fund managers oversee your investments, making informed decisions to maximise returns.

3. Liquidity

Mutual Funds allow you to convert your investments into cash quickly and easily, providing financial flexibility.

4. Access to various asset classes

Mutual Funds offer exposure to a wide range of assets including stocks, bonds and more, thereby diversifying your portfolio.

5. Convenience

Investing in Mutual Funds is hassle-free, making it accessible to individuals and institutions and simplifying the investment process.

6. Profit potential

Mutual Funds have the potential to generate attractive returns over time, allowing your money to grow steadily.

What are Fixed Deposits and what are their benefits? 

Fixed Deposits are financial instruments where you deposit a lumpsum amount for a predetermined period at a fixed interest rate. 

Fixed Deposits Benefits

1. Steady returns

Fixed interest rates provide predictable and stable returns.

2. Capital preservation

FDs safeguard your initial investment, ensuring that you do not lose your principal amount.

3. Low risk

FDs are generally low-risk investments, making them suitable for conservative investors.

4. Tax benefits

Tax-saving FDs offer tax benefits and attractive returns. This reduces your taxable income and increases savings. 

5. Liquidity

While they have less liquidity than Mutual Funds, FDs still provide access to funds during emergencies.

6. Ease of investment

FDs require minimal effort to set up and maintain, catering to various investors' preferences.

What Should You Select?

There is no single answer when you are looking to select between FDs and mutual funds. There are several differences between FD and mutual funds, and both have their benefits.

Investors who are risk-averse and want fixed returns from their investment can consider bank FDs. However, if you have long-term investment goals and are looking for an investment option that can deliver higher returns, mutual funds can be an excellent option.

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