Before we begin, it would be great to clear out some basic differences of the mutual funds as well as fixed deposits.
Mutual funds use a bunch of investments made by numerous investors in various holdings which grow over a period and generate returns.
On the other hand, fixed deposits or FDs are nothing but saving that an investor keeps with a bank or other service providers as fixed over a tenor and earns decent FD interest rates as saving.
The returns on the fixed deposit interest rate could be as higher as 8% or more and depend on the age and membership status of a subscriber.
Thus, both mutual funds and fixed deposits have their own qualities and may be suitable for investors as per their affordability and other aspects.
Mutual funds features and benefits at a glance
Here are some vital features and benefits of a mutual fund investment such as:
- They offer exposure to markets and equity portfolios to investors which can help subscribers also to understand the market better and help in planning the future investments
- They are a good growth generator for investments
- They are risky investment products as they are dependent on market performance to provide returns
- Even short-term mutual funds gains are taxable
- They are recognized as a liquid form of investment
Fixed deposits features and benefits at a glance
Here are some essential fixed deposit features and benefits such as:
- A fixed deposit investment can offer you a fairly high FD interest rate based gains
- They work as liquids, and it means that you can easily break them if you need some urgent money before the tenor maturity
- You can see your savings to grow over a time
- Compared to mutual funds, fixed deposits are considered a highly safe investment option to make
- The returns of a fixed despot is not affected by fluctuating market conditions
- You can rely on fixed deposits to provide you interest as income at chosen periods, especially if you are a senior citizen
- A senior citizen can make the most of an FD scheme as leading banks and non-banking finance companies (NBFCs) offer the highest fixed deposit interest rate payouts to senior citizens
- The higher you FD tenor period is – the higher will be your return. In other words, long-term FD schemes provide better returns when compared to premature or shorter periods
- You can avail a loan against your fixed deposit. You can keep the amount in your FD account as collateral and avail a loan if you have some immediate need of money
Although both mutual funds and fixed deposits have own benefits which may suit different types investors, fixed deposits score some points over mutual funds which may help you in switching to an FD. Such scoring points are:
- Compared to mutual funds, fixed deposits offer a better safety and reliability
- Fixed deposits have a better liquidity ratio when pitted against mutual funds
- FDs offer more and a superior return on investment or profits
- FDs are a better financial tool which works great as an income source for retirement
- You can always channelize an FD for other purposes other than just availing good interest based returns. You can also save for purchasing a long-craved asset or plan an abroad trip with family
- You can invest in multiple FDs at a time and get paid monthly, quarterly, half-yearly and annually
The Bottom Line
Now that you know the immediate features and benefits of both mutual funds and fixed deposits, you can quickly pick your choice as per your current financial situations.
However, in general terms, FD is a much better investment scheme than mutual funds.