As a responsible investor, it is always advised to learn about the investing instruments before you settle down for one. Once you know the investment instrument that you are going to opt for, it is crucial that you take into account all its factors. With so many investment options available in the market today, it is easy to lose track of things and waver from your original search path. Hence it is crucial that you comprehend your need for investing and the kind of risk appetite you have before you take a final call.
Two of the most popular investment vehicles viz. fixed deposit and mutual funds have been on the list of many investors. However, if you are one of those who is still deciding as to which investment vehicle is better – fixed deposit or mutual funds, then you should weigh all your options and decide on where you want to invest your money.
| Mutual Funds | Fixed Deposit |
| What are mutual funds? Mutual funds are where many investors both – amateurs and veterans – come together to create a healthy and growing financial corpse. • Investment here is done through the medium of equities, bonds, securities or money market instruments. • The final income that is done through these investments is eventually distributed among the investors. • This distribution is done after deducting the expense incurred by the mutual fund company. | What are Fixed Deposit? Unlike, mutual funds, fixed deposits does not involve pooling of money by a group. Fixed deposit is where the financial corpse is created for an individual by keeping the sum of money fixed for a given period of time.This period may be anywhere between 1 – 5 years.As compared to savings account fixed deposit are beneficial, because the rate of interest offered here is much more than the savings account.This interest is combined with the principal and returned to the account holder at the time of maturity at the end of the tenure. |
| How long can the investor stay invested? Mutual funds have lock-in periods of at least 3 years. But, you can exit this fund as and when you want. In case of mutual funds, any gains that an investor makes before the year ends are counted in tax as short-term capital gains | How long can the investor stay invested? Fixed deposit lets you keep your money safe and guarded for a period of 1–5 years.In the case of fixed deposits, if the interest earned exceeds Rs.10,000, tax is deducted at source (TDS) at the rate of 10% of this amount. |
| Safety Interest rates in mutual funds are subjected to market risks and hence tend to waver all the time. However, returns in mutual funds are higher than any other investment instrument. | Safety Gains in fixed deposits are uniform and constant.Gains in fixed deposit cannot be more than stated as this percent of the hike is entirely dependent on the decision of each financial institution. |
So, if your risk appetite is low, then it’s better to opt for a fixed deposit. However, if you can take a bigger risk, then it’s best to go with mutual funds. In any case, do thorough research before you invest your hard earned money in either of the saving/investing instruments.