Choosing an Investment: Fixed Deposit V/S Mutual Funds

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Currently, many people may consider using their income to make investments with the intent of getting returns on the same. However, the risk associated with an investment remains a concern for many.

Notably, investments dependent on conditions in the market can carry a higher risk. Hence, numerous people look at investing in options that give good returns and remain relatively safe. In this way, they are able to grow their savings obtained from any profits of their business or appraisal at work.

With regard to this purpose, here’s a look at 2 popular investment options.

Fixed Deposits:

FD remain very popular due to the secure nature of the investment. Opening an FD is preferred by many as it carries very less risk in comparison to some of the other investment options. Also, here the FD amount has an insurance cover of INR 1 lakh.

Moreover, the returns in case of an FD are fixed. Note that returns are not affected by market fluctuations, with the rate of interest for an FD being higher than that for a savings bank account.

Furthermore, the rate of interest on an FD can depend on the FD amount and tenure. Herein, it can be advisable to look at FD terms offered by a number of NBFCs as these can offer better terms. Additionally, one can also take the help of FD calculators available on various sites. With these, it is possible to calculate the maturity amount of an FD by entering the tenure and FD amount for the FD investment.

What’s also worth noting is that a person having an FD can avail an overdraft facility. For numerous NBFCs, the amount that can be borrowed may be around 60-75% of the FD amount.

Mutual Fund Investments:

In the case of mutual funds, there is a higher risk involved. Herein, returns are dependent on various market conditions, with the rate of interest on an investment changing with the market fluctuations. As a result, the returns from mutual funds aren’t fixed. Hence, investments in mutual funds need to be made with careful financial planning, taking different risks into consideration. For this purpose, one may even consult an expert.

However, note that in the case of an FD, withdrawing the investment amount before the end of tenure can attract a penalty. Furthermore, it may result in a reduction in interest rate for the FD. Notably, this restriction is not imposed in case of mutual funds. As a result, during the times of a financial crunch or in any emergency, the investor can withdraw their cash from a mutual fund.

Another point of concern for an FD is the taxation on it along with the effects of inflation. As a result of these 2 factors, it may even be possible that a person’s FD investment brings a loss. In the case of mutual funds, however, by making wise investment decisions, it is still possible to overcome market conditions and earn a profit on the investment.

Thus, various factors need to be considered before investing in a fixed deposit or mutual fund. In case a person wishes to avoid taking a risk, an FD remains a good option. However, in any scenario, an individual must invest wisely with a long term financial plan in mind.

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