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FD vs. Mutual funds: Currently which is best investment plan in India?

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Mutual funds

Fixed Deposits and Mutual Funds are the staple investment options. While both the investment options can help you grow your money, you should choose one over the other based on your expectations, risk appetite and other factors. Let’s discuss both the options in detail. 

Fixed Deposits:

Fixed Deposit (FDs) are a proven way to save money and earn interest. Herein, you deposit a lump sum in an NBFC or bank for a fixed period and at the fixed interest rate. Upon the tenure’s expiry, you get the invested sum and compound interest. Suppose you invest INR 1 Lakh at 8.35% p.a. for 03 years in an FD. Now, your total proceeds will be INR 1, 27,200 at maturity – INR 1 Lakh invested amount and INR 27,200 as interest payouts. Feel free to use FD calculator monthly interest to know your total for any interest rate or tenure.

The interest rates on FDs are subject to the bank, tenure and other factors. However, the proceeds are guaranteed. Even if the interest rates fall anytime during the tenure, you will receive the interest rates agreed at the time of opening the FD. The tenure ranges from a week to 10 years and the option of quarterly and monthly interest pay-out is available. Depending on the bank, you can get loans at competitive interest rates against your FD.

Mutual Funds:

Mutual Funds are market-oriented investment schemes apt for investors keen on diversifying their investment portfolio. In Mutual Funds, the money is pooled in from different investors with a common objective. The corpus thus created is invested in different asset classes and the returns passed on to investors proportionate to their investment. The returns are higher than most other investment instruments but not guaranteed. However, two assurance factors are always there. One, the mutual funds are managed by experts that strive to maximize profitability and mitigate risks for investors. Two, the funds are regulated by SEBI and AMFI.

Takeaways:

Let’s pit the two investment instruments against each other to help you make wise decisions.

  • Returns:

Being a market-linked investment vehicle, Mutual Funds offer better ROI than any other asset class. But the element of risk is always there. You can earn up to 15% returns or lose the invested sum, depending on market performance and various other factors. Contrarily, the interest rates are fixed and guaranteed in a Fixed Deposit. Decide your risk tolerance and investment objectives before signing in. Research the market to find the best FD rates in India.

  • Impact of Inflation:

FDs are immune to inflation, as the interest rates are pre-agreed. On the other hand, Mutual Funds are prone to inflation, which may impact your returns significantly. 

  • Taxation:

The proceeds and highest fd interest rates are taxable as per your tax slab while the same in Mutual Funds are subject to the holding period. You can opt for “Tax Saver” FDs to receive up to INR 150,000 tax relief on the total taxable income. These are readily available at your bank.

  • Liquidity:

Mutual funds are easy to liquidate without incurring losses. Though FDs require you to hold on the money until maturity, the option to withdraw is always there. 

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