Fixed-income securities instruments such as bank FDs have been the preferred mode of investing for Indians for ages. Bigger gains sound more appealing than the idea that “my wealth is secure in the bank.” But, at times when post-tax FD returns barely outperform inflation, is this certainty enough to persuade investors to leave their deposits in the bank?
If you’re an investor seeking to understand more about the financial markets, you may come across a variety of investing opportunities. Mutual funds vs FD, on the other hand, have caused the most confusion. When compared to fixed deposits, mutual funds are indeed a standard investment alternative. Both assets are on different investment paths. So let’s compare both of them and then decide which one is a better alternative for you.
Scroll down to check the comparison of Mutual funds v/s Fixed deposits
On basis of returns
The first advantage of bank FDs is the certainty of assured returns. Furthermore, you will learn how much income you will receive as a yield when you invest it. Varying banks provide different returns on their investments for different periods. However, the bank commits to repaying the interest rate (at maturity) that it agreed to pay while the funds were invested.
Conversely, there is no promise of fixed returns in the context of mutual funds, and the yield amount may fluctuate according to market fluctuations. However, this does not imply that the returns are going to be negative. In reality, in the long run, the likelihood of higher returns is more in the case of mutual funds.
On basis of liquidity and the impact of inflation
Fixed deposits don’t offer liquidity because the amount invested is locked in for a set period of time. If you withdraw your FD amount before it matures, the bank will levy you a charge. Mutual funds, in contrast, provide greater liquidity and allow you to withdraw cash at any moment.
Since the interest rate is predetermined, inflation does not affect FD returns. Mutual fund profits are inflation-adjusted, which increases their chances of producing higher returns.
On basis of risk and taxability
You’ve probably heard the phrase “Mutual Fund investments are subject to market risks; thoroughly read all scheme-related paperwork.” The volatility in a mutual fund varies for every fund and is primarily determined by the markets. FDs are risk-free since the investor receives a fixed income at a predetermined rate of interest. Although FDs are regarded to be risk-free assets, customers should be aware that the stability and safety of FDs are dependent on the financial institution /bank’s fiscal health.
Short-term and long-term taxes on capital gains apply to all mutual fund schemes. STCG is taxed at a flat rate of 15%, while LTCG has taxed at a rate of 10% on earnings over Rs 1 lakh. In the instance of debt funds, the LTCG is 20% after the markup. However, FDs are liable to a 10% TDS on the interest generated more than Rs.10,000 in a fiscal year.
On basis of capital appreciation and regulatory authority
A mutual fund is generally ideal for strong capital growth based on the timeframe and prior trends. Fixed deposits, on the other hand, will provide you with an assured return while also securing your corpus sum for the duration.
Although both investments are carefully regulated to protect individual investors’ interests, mutual funds are principally controlled by the Securities and Exchange Board of India (SEBI) whilst fixed deposits are primarily supervised by the Reserve Bank of India.
The bottom line
Mutual fund v/s fixed deposits both have distinct characteristics that, based on shared investment goals, can be tailored to the needs of the investor. If you want to broaden your portfolio, you can check both investing possibilities and make a decision that will provide you with the necessary economic independence.
Alternatively, you can select the best alternative based on your intended goals. When it comes to risk, an FD is unquestionably more profitable than mutual funds. However, when it comes to returns on investment, an FD will lag below mutual funds. Such judgments must be founded on a thorough examination of your long-term objectives, as well as an understanding of the current market and economic environments.
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