Among the various financial instruments, mutual funds and fixed deposits are perhaps the most popular. Although they are entirely different when compared on the basis of investment method, interest rates, returns, liquidity options, etc. investors have always debated on which one proves to be a better option under the given circumstances and market conditions.
Fixed deposits offer fixed returns as their interest rates do no change or depend on the market fluctuations. On the other hand, mutual funds are market-linked instruments that do not have fixed return rates but are known for providing better returns in the long run.
Let us understand the differences between them in detail now:
Types of Mutual Funds and FDs
Mutual funds are basically of three types viz. debt, balanced, and equity funds. When you invest in debt mutual funds, the money gets invested into government bonds and securities whereas equity mutual funds do exactly the opposite. Balanced mutual funds invest equally in government bonds/securities and equity markets.
Fixed deposits are of two types viz. Cumulative and Non-cumulative FDs. Cumulative FDs provide the entire interest at maturity whereas non-cumulative FDs provide the interest earnings at regular intervals in the form of periodic payouts.
The returns offered by a fixed deposit plan are fixed as its interest rate remains constant throughout the tenor. Also, you can use the FD maturity calculator to predict the returns in advance.
Mutual funds do not provide fixed returns as their rate of return is linked with the market. To get better returns, you will have to pick a longer investment tenor.
Currently, the market is rife with fluctuations and this poses a greater risk to your invested capital as the performance of mutual funds is either partially or totally dependent on market conditions.
Though FDs provide security to the invested capital, the interest rates have been reduced by banks owing to reasons like repo rate cuts.
However, you can still expect your investments to grow at a higher rate by investing in company FDs. For example, Bajaj Finance FD offers fixed deposit interest rates up to 7.35% which is almost 2% greater than what banks are offering currently.
This additional interest rate will help your savings grow even when the market is going through a tough period. Also, these fixed deposits are ideal for both short and long term financial plans as they offer a flexible tenor from 12 to 60 months.
You can also split your corpus to invest in multiple FDs by using the multi-deposit facility.
This facility enables you to pick and invest in different tenors and FD types at once to balance out the difference of interest rate and to invest the consolidated returns at a higher rate when the FD rates rise.
Also, the option of applying for a loan by using your deposited amount as collateral enables you to fund your emergency expenses without disturbing your investments in any way.
Senior citizen FD rates are 0.25% higher than the FD rates offered to regular customers. Moreover, these FDs have received stable ratings from credit rating organizations like CRISIL and ICRA and this validates them as a stable investment option for you.
FDs v/s mutual fund has always been a topic of hot discussion among investors. However, the present economic conditions might not be too bright for investing in market-linked instruments. Banks have also reduced their FD rates but you can still earn at a higher rate by depositing your savings in company FDs. For instance, Bajaj Finance FDs are offering an interest rate of 7.35% which is quite higher than bank FD rates. Moreover, these FDs are also safe as they are rated highly by credit rating organizations for being a stable and safe investment option. Also, a 0.10% additional interest rate is provided on utilizing an online FD form to invest in an FD plan.