Fixed Deposit vs Mutual Fund: Which Is Better?

Making the right investment choice can be overwhelming. Setting up an investment plan involves a lot of decision making and evaluation of opinions from experts. Investments options should not be decided merely on the basis of returns but also take into consideration the risks involved in them.

From a plethora of investing options available for you, we will be discussing fixed deposits and mutual funds. So, let’s begin.

The following table will give you an understanding of the two investment options –

Definition It is a type of investment instrument that promises you (the investor) a fixed rate of interest. However, you cannot withdraw money invested in it for a fixed tenure without paying some penalty Money is collected from different investors and is invested in shares, stock, and bonds. All of this is managed by a professional fund manager who ensures their clients earn high returns
Returns It offers guaranteed returns at a predefined rate over a specific period of time Here, returns are based on the investment portfolio (Debt-Equity) and market performance
Risk It includes zero risks as it does not involve dealing in the stock market, the returns are assured on a Fixed Deposit Risk varies from funds to funds and is usually influenced by market movements. Debt Market are less risky than Equity Market.
Expenses Generally, they do not come with any additional costs. However, you may have to incur some penalty if you choose to withdraw your money before maturity Mutual funds carry certain charges and expenses like entry exit load which are deducted while managing the funds.
Withdrawal To withdraw money from the FD account, you will have to break the Fixed Deposit and pay penalty charges for premature withdrawal Mutual funds are liquid funds and you can easily withdraw your money according to your investment type i.e. short term or long term investment
Taxation It is subject to 10% TDS on interest earned above INR 10,000 over a financial year. However, some banks provide tax savings fixed deposits for senior citizens It is subject to short-term and long-term capital gains tax.

Other charges involved are –

  • STCG at 15%
  • LTCG at 10%

For earnings above INR 1 lakh

How to Choose:

Benefits of Fixed Deposits

  • It involves no risk as it is backed by banks
  • It provides guaranteed returns
  • Has tax benefits – wherein you are entitled to tax deductions up to INR 1.5 lakh under Section 80C of the Income Tax Act, 1961 (only for FDs over five years in tenure)
  • Senior citizen FD accounts earn up to INR 50,000 in interest, and the amount is tax exempted under Section 80 TTB of the Income Tax Act, 1961.

Benefits of Mutual Funds

  • You can mitigate the risk by diversifying the investments
  • You can invest a minimum of INR 500 in mutual funds
  • Offers high returns – primarily when investing in equity-oriented funds
  • A professional fund manager manages the funds
  • Facility to invest the surplus amount to the existing portfolio with the help of top-ups
  • You can avail different mode of investments – a systematic transfer plan, systematic investment plan, and lump sum.

A lot of people have been keen on making the right investment to secure their financial future. Whether you are investing in online mutual funds, fixed deposits, or any other investment instrument, conduct a thorough market research and choose an option that allows you to accomplish your goals considering your risk appetite. Happy Investing!


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