Mutual Fund vs Fixed Deposit

As a popular investment instrument, Fixed Deposit and Mutual Fund both are best for investment. Both have enabled the investor to grow their savings easily and that you need to know Mutual Fund vs Fixed Deposit. Both these avenues vary in terms of investors investment needs and investor age. If any investor wants to invest in either of these financial instruments then they need to know everything about them.

Fixed Deposit –

A fixed deposit is a financial instrument provided by banks or NBFC’s which provides an investor with a higher rate of interest than a regular savings account. It may or may not require the creation of a separate account. Fixed deposit is that the money cannot the withdraw from the FD before maturity. If an investor wants to withdraw their deposit from the FD then they will get less interest rate. Some banks or NBFC may offer additional services to FD holders such as loans, credit cards against FD certificate under some conditions. Fixed deposit rates depend on the RBI repo rate. Banks may offer lesser interest rates under uncertain economic conditions. The tenure of an FD can vary from 7, 15 or 45 days to 1.5, 3, 5, 10 years.

Investment: –

In Fixed Deposit, an investor can invest one time before the Fixed Deposit start. The investor can not invest in the time of tenure. If the investor wants to invest on a monthly/yearly basis then they need to go for recurring deposits.

Returns: –

Fixed deposit offer fixed and guaranteed return at a predefined interest rate for a specific time period. It is not linked with any type of market. So its return remains unaffected by market forces.

Risk: –

FDs carry zero risk as the investor will receive guaranteed return at a fixed interest after the tenure completes. In FD investor don’t loss their principle amount. They will get principle and interest after the tenure end.

Expenses: –

Fixed deposit do not need any type of additional expenses over the tenure of the deposits.

Withdrawal: –

Fixed Deposit has a lock-in period in the tenure of the time. After the tenure ends investors get full principle with the interest. If any investors want to break their Fixed Deposit they can break the Fixed Deposit and withdraw their deposits. But investors need to pay a charge for that so the investor can get low interest on the Fixed Deposit from the predefined interest.

Taxation: –

In Fixed Deposit, the percentage of tax is as per your income slab. That means if you fall under the 10% income tax slab you need to pay 10% tax on Fixed Deposit return.

How to Apply: –

An investor can do Fixed Deposit offline in bank branches and they can also do it online through their official websites like SBI online, HDFC Bank etc and any other third party website like Groww etc.

Mutual Fund: –

A Mutual Fund is an open-ended professionally managed investment fund that pools money from investors to buy stocks, bonds, equities and market-linked instruments or securities. Mutual fund investors may be retail or institutional in nature. They come together to invest in mutual funds with a common goal to increase their savings. The total income that comes through these investments is equally distributed with the investors after deducting expenses. Mutual fund term is typically used in the USA, Canada and India.

Investment: –

There are two types of investment in a mutual fund. An investor can invest at a one-time lump sum amount in a mutual fund and can invest monthly/yearly basis as SIP(Systematic Investment Plan) in the same mutual fund.

Returns: –

In mutual fund, there are no assurance or guarantee return. Mutual fund return linked to market they invest in and are completely dependent on performance of stocks, bonds, equities and securities. If any investors invest in good mutual fund then they can get good return and that can higher than Fixed Deposit.

Risk: –

The risk involved in mutual fund varies on fund to fund and most of the times mutual fund have medium to high risk. Mutual fund always linked market so if market or economic conditions are poor anytime then you can get negative return also as well as you can lose your principle amount.

Expenses: –

Managing mutual fund contains certain charge and they are deducting the charge for their annual operating fees which is called as Expense Ratio. The expense ratio of mutual funds varies from fund to fund and mostly it is between 1% to 3% based on their annual operating charge.

Withdrawal: –

An investor can withdraw the mutual fund at a free of charge after a certain time. For withdrawing before the given stipulated time investor need to pay a charge of 1% in the form of exit load. Exit load means shareholder fees which comes in form of sales charges, commission and redemption fees.

Taxation: –

All mutual funds are subject to short term and long term capital gains tax. STCG(Short Term Capital Gain) tax is charged as a flat of 15% whereas LTCG(Long Term Capital Gain) tax charged as 10% of earnings above ₹1 lakh. In debt funds, the LTCG tax is 20% post indexation.

How to Apply: –

An investor can do Mutual funds offline in their respective fund branches and they can also do it online through their official websites like SBI Mutual Fund, HDFC Mutual Fund etc and any other brokers like Angel Broking, Groww etc.

Which is Best: –

The best investment depends on their investment need, knowledge about the market and age. If investors have basic knowledge about the market they can easily get a higher return than Fixed Deposit and if investors age less than 40 they can take the risk of the mutual fund. Mutual fund always best in place of Fixed Deposit in terms of return if anyone knows everything.

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