Mutual Funds vs Fixed Deposit Which offers better returns in 2023

Please read all scheme related documents carefully before investing. Before we conclude, we wanted to quickly touch upon the benefits of both mutual funds and fixed deposits. When you invest in a mutual fund, you purchase the mutual fund units to the extent of your investment. Unlike fixed deposits, mutual fund returns are not predictable and they are subject to different kinds of market risks. You can roughly estimate how much you can earn but you may not know exactly how much with certainty. The same also applies to our investment journey where most of us are still stuck with traditional financial instruments like Fixed Deposits, physical Real Estate and physical Gold.

The market cap of these top 50 companies is Rs 113.5 lakh crore, which is almost 60 percent of the Indian gross domestic product . These companies come from 14 different sectors such as automobiles, pharma, banks etc, and these are the top companies of their respective sectors. In fact, the Indian economy has a huge dependency on these companies, so it is next to impossible that all these companies will default at the same time, and your investment goes down the drain. Mutual funds vs. fixed Deposit have the main competition on fixed-rate return. In the long-run investment, the rate of return would be 10-15%.

Mutual Funds

difference between fd and mutual fund Deposits offer a fixed return, which is agreed upon at the time of investment. Therefore, the interest rate is usually lower than that of Mutual Funds, as the risk is also lower. However, one may be more suitable than the other for an investor based on their risk appetite and financial goals. Here is a detailed guide to the two investment types to help you decide between them. With fixed deposits, you know exactly what your fixed deposit return is. Banks make it easy for you to obtain loans against the value of your fixed deposits.

Moreover, even if you want to redeem the money on the seventh day itself, you do not have to pay a penalty for that. The principal amount deposited in fixed deposits remains the same. Fixed deposits offer flexible tenure options, ranging from 7 days to 10 years. A platform for parking surplus money for investments and wealth management.

The taxation on the withdrawals of mutual funds is slightly different. You are taxed short-term capital gains or long-term capital gains according to the holding period. A mutual fund is a fund that pools money from various investors and invests in securities like stocks, bonds, etc. The returns are variable and distributed amongst all investors as per their investments. Fixed Deposits and mutual funds have always been popular financial planning tools. However, they may offer different benefits to different investors.

What is the current interest rate on mutual funds?

In equity mutual funds, the risk is even higher as the underlying assets are instruments that fluctuate as per the market movement. Mutual funds are a wealth-building and wealth management offering. Comparing fixed deposits with mutual funds is comparing apples with oranges (see Table 1 – table of differences below). Like fixed deposits , mutual fund schemes accept investor money.

FDs offer compound interest at a fixed rate over the investment term, with interest, typically compounded quarterly. On the other hand, debt funds are market-linked and do not guarantee returns. However, historical data suggests that debt funds have usually outperformed FDs of similar tenures. In mutual funds, investors invest in a pool of assets whose value fluctuates by the performance of an underlying index. Mutual funds differ from individual stocks because they are managed by professionals and have professional managers who decide how to allocate assets among various investments.

Mutual funds have a more comprehensive classification of funds to cater to the unique requirements of those looking to invest. For a higher rate of interest for FD, an investor can invest in a cumulative FD or a senior citizen FD. When you go to a public sector, private bank or a Non-banking Finance Company to open an FD, you are informed about the interest rate it will fetch on maturity in advance. This written interest rate is guaranteed and cannot be altered or changed.

Mutual fund and SIP investments offer higher returns on your investments. Fixed Deposits offer tax benefits to the investor under the Income Tax Act, 1961 and do not make the investor bear the extra investment cost. Its units can be redeemed at any time on a click of a few buttons and the money will be deposited to the designated bank account within two-three business days. In fact, in the case of several Debt Funds, no exit load is charged at the time of its encashment.

In order to achieve your financial goals, you can choose between Mutual Funds, Systematic Investment Plans, and Fixed Deposits. The choice of whether you want to invest in a mutual fund or a fixed deposit is ultimately dependent on your risk appetite. The depositor will continue to receive the fixed interest payment. This is because fixed deposits are not affected by market performances. However, a bank can still go bust and your FDs and interest is insured only up to an amount of Rs 5 Lakh.

Tax treatment on fixed deposits and debt mutual funds

Mutual Funds may bring higher returns for the investor, but they come with a higher risk too. MFs are suitable for investors who want to explore different investment schemes and are ready to take a higher risk on their money. The rate of interest for FD is fixed and governed by the central bank, making them extremely safe for the investor. You can use a calculator for FD interest and calculate your earnings when opening an FD account.

FD can be relied upon if it is to invest carefully without taking risks. Mutual funds, on the other hand, have often been viewed with suspicion in India. The reason is that most middle-class families do not have a good risk appetite for investments. The common belief amongst Indians is that mutual funds can lead to a loss of money. A SEBI survey shows that Indians prefer fixed deposits to mutual funds.

Mutual Fund vs. Fixed Deposit: A Comparison

When the market goes down, a higher number of units are bought at a lower price. Similarly, fewer mutual fund units are purchased at a higher price when the market goes up. On the other hand, fixed deposits do not provide such cushion to the investors.

• Mutual funds can be invested through a systematic investment plan or depositing a lump-sum amount.
• Plus, you come to know how much you will get as the return amount at the time you invest the money.
• They provide marginally higher returns with similar risk levels and offer better benefits for investors in higher tax slabs.
• Note the key differences between mutual funds and fixed deposits before investing.

Banks offer assured rates of interest on fixed deposits, and you can use the FD calculator available on the bank’s website to determine the interest you will earn. Vipul Das is a Digital Business Content Producer at Livemint. He previously worked for Goodreturns.in and has over 5 years of expertise in the finance and business sector. Stocks, mutual funds, personal finance, tax, and banking are among his specialties, and he is a professional in industry research and business reporting.

Fixed deposits and mutual funds are two popular investment avenues. Mutual funds majorly invest in stocks, bonds and commodities and offer returns as per the market performance of the underlying asset. On the other hand, FDs offer a fixed interest rate for a fixed term. Fixed deposits are offered by banks or NBFCs, whereas mutual funds are offered by fund houses.

To get access please email on from your registered email-id or contact you Relationship Manager. Mutual funds have expense ratio or an annual fee which varies between different types of funds and can be in the range of 0.5% to 2% and even more. Instant payout on selling shares, with the ICICIdirect Prime Account. Get investing insights from our indepth research tools and capabilities. The lock-in period for a Mutual Fund depends on your chosen scheme, but you may exit when you wish to. This is an exclusive story available for selected readers only.

A mutual fund is a financial instrument made up of a portfolio of stocks, bonds, equities, and other market-linked instruments or securities. Several investors come together to invest in mutual funds with a common goal of increasing their savings. After deducting the expenses incurred, the total income earned through these investments is equally distributed among investors. As popular investment vehicles,fixed depositsand mutual funds have enabled investors to grow their savings quickly. However, the benefits offered by both these avenues vary in terms of your investment needs. Hence, before choosing where to invest, it is best to know in detail about these investment avenues.

Interest-based returns are provided by Fixed Deposits , while investment returns are provided by Mutual Funds . Mutual Funds have a lock-in period, but an investor can exit them at any time. You can invest in Fixed Deposits only by making a lumpsum investment. You can invest in Mutual Funds in two ways – lumpsum investment and Systematic Investment Plan .

Therefore, investors should choose an investment option based on their risk appetite and financial goals. A Fixed Deposit is a term deposit that locks your invested money for a fixed duration and gives pre-decided returns. The investor’s corpus remains safe in this investment and gives steady returns. The amount invested by the investor in an FD is not affected by movements in the stock market or the country’s economic conditions. An investor can open an FD online or offline with a bank of their choice.

In contrast, TDS is not deducted on gains in debt mutual funds. Additionally, bank FDs have a lock-in period, and if an individual breaks the FD before maturity, they may incur a penalty. In contrast, debt mutual funds are more liquid, and individuals can redeem their investments partially or fully as per their requirements without any penalty. In conclusion, Fixed Deposits and Mutual Funds are different investment options that cater to different investor needs. While Fixed Deposits offer a fixed return with low risk, Mutual Funds provide higher returns with a higher risk profile.

Name, PAN, Address, Mobile Number, Email id and Income Range have been made mandatory. Investors availing custodian services will be additionally required to update the custodian details. We’ve partnered with Morningstar, the global leader in fund analytics, to give you information, ranking and star-ratings on every single mutual fund in India. With bank FDs, there is no investment cost, and you will receive the entire interest promised by the bank at the end of the tenure. In contrast, the AUM of the large-cap category has only grown by approximately 3%, increasing from Rs. 2,31,437 cr to Rs. 2,38,225 cr during the same period. I authorize RBL Bank and its representative to email me w.r.t. it’s products and offers.