Finschool By 5paisa


Investing in Mutual funds v/s Fixed deposits. The better option?

By News Canvass | Feb 09, 2022

What is a Fixed deposit?

Fixed deposits are term deposits that you keep with the bank for a specific or fixed period of time. You can invest any amount for as little as a few days to as long as ten years. During this period, you earn a guaranteed interest applicable for the tenure as the rate increases with an increase in tenure.


1] Because the interest rates on FDs are fixed, the rewards on them are are too.

2] Since FD interest rates do not change during the tenure, the return will be constant throughout the tenure of the deposit

3] Profits are unaffected by market conditions.

4] There is no risk because the returns are guaranteed and the money invested is secure.

5] There are no fees associated with investing.

6] Interest on FDs is taxed according to the investor’s tax bracket.

7] Can be utilised to save money on taxes under Section 80C; however, there is a 5-year lock-in period.

What is a Mutual Fund?

A mutual fund is a shared pool of funds into which individual participants contribute their individual contributions. These pooled funds are subsequently invested in accordance with a defined objective, which is also the fund objective.

Debt, equity, and balanced mutual funds are the three categories of mutual funds. Debt funds engage primarily in fixed-income securities such as government and corporate bonds, whereas equity funds invest primarily in market-related instruments, and balanced funds incorporate the two.


a} Because mutual funds do not have a set rate, their returns might vary.

b} Because there are no fixed rates, returns will vary; they may be high, low, or even negative at times.

c} Profits are determined by market conditions.

d} There is risk associated while investing in mutual funds; the degree of risk varies depending on the type of MF.

e} There are some expenditures and costs associated with investing in mutual funds.

f} Mutual funds are taxed dependent on how long they have been held. The investor may be subject to short-term or long-term capital gains tax, depending on the time period.

g} An equity-linked savings plan can help you save money on taxes; the lock-in period is three years.

Who Should Invest in Fixed Deposit?

1] A person who is unwilling to risk their money in the market.

2] An individual with taxable income can invest in a fixed deposit (FD).

3] An individual who is retired and wishes to have a steady source of income might apply for FD plans.

4] A housekeeper with a reasonable amount of money can examine numerous FDs and invest in one that best suits their needs.

Who should put their money into mutual funds?

a) Anyone who wants to attain a short or long-term financial goal;

b) Anyone who wants to earn greater returns than a traditional savings account;

c) Anyone who wants to diversify his or her investment portfolio.

Which is the better option?

Before investing in a fixed deposit or mutual fund, knowing and understanding all of the features, benefits, restrictions, risk considerations, short- and long-term financial objectives, liquidity, and other aspects is important. After you’ve compared the basic differences between FDs and mutual funds, compare different banks, asset management firms, and fund houses in terms of services, fund management techniques, and so on. Understanding market circumstances and personal requirements is the final step before choosing the optimal investment vehicle.

You can select the ideal mix for you based on your objectives and risk tolerance. Because of their distinct advantages, both products can find a place in your portfolio. Whether you choose to invest in a fixed deposit or mutual funds, it’s critical to understand the product’s features and fine print before making a decision.

View All