Wednesday, November 29, 2023
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Mutual fund vs Fixed deposit; which one is best investment option?

When it comes to money savings and returns, people usually go for a fixed deposit or invest in a mutual fund scheme. But both of them are completely different from each other. There are many facts and figures to differentiate between both of these options and it is very important to choose the right option for investing your funds. The fixed deposit is like a saving account, but it provides a higher rate of returns than a regular one until the maturity date comes. Whereas, a mutual fund is a kind of investment in which shareholders are involved in order to trade in different holdings and it is professionally managed. Moreover, both of them are different from each other and here is a brief comparison between them for you to differentiate.

The fixed deposit accounts are famous as they provide a great return on the papers, but in actual it depends more on the current tax slabs. This is possible that your money may go at a loss in some cases as the people who invest a bigger amount in making fixed deposits ends up paying more tax as they go hand in hand. In case of mutual fund investments, the whole scenario changes as they are a great option for tax savings. The mutual funds are also disturbed by the movement in the market and they carry a sufficient amount of risk with them, but they are regulated and monitored by the professional stockholders and traders who will try their best to keep your money safe.

Another comparison between fixed deposits and mutual funds can be done on the basis of the rate of return. The rate of return is fixed and the estimate is pre-specified in case of fixed deposits and they are not affected by any diversification in the market. Whereas the mutual funds have a great potential to grow, the rate of returns if the market condition gains a boost. If you are satisfied with the returns you are getting from fixed deposits than it is a good option but for those who like to take a risk and achieve more than what they expect, mutual funds are the best option.

As the name suggests, the fixed deposits are made for a fixed period of time, which is not the case in mutual funds. Due to this scenario, the fixed deposits have medium to low liquidity till the tenure comes to its end, but in case of mutual funds if you have passed the minimum holding period then high liquidity is provided to you. This is one of the biggest clashes between fixed deposits and mutual funds where the mutual funds win the race.

The other comparison can be done on the basis of the premature withdrawal as if you are a fixed deposit holder and you need a premature withdrawal then you have to pay a penalty amount which is not the same if you are a mutual fund investor. In case of having a mutual fund, if you need a premature withdrawal then you are allowed without any exit load and no penalty will be charged.

One of the most important and crucial factor to compare between mutual funds and fixed deposits is the tax status. In case of a fixed deposit, the tax does not depend upon the tenure of the fixed deposit and only affected by the current tax slab. Whereas in the case of the mutual funds, the tax status depends on the category of the scheme you have invested in. This makes sure that mutual fund investments are a much better option than fixed deposits.