Mutual funds and fixed deposits (FD) are today's most popular investment choices. Both these investment options provide decent returns over a period of time. FD calculator and mutual fund calculator assist in knowing the exact amount to be received at maturity. FDs and mutual funds differ in many ways, namely risk, features, benefits, etc. Fixed deposits are provided by banks as a means to invest money. On the other hand, there are asset management firms and fund houses which let you invest in mutual funds.
The differences and the benefits of each investment should be evaluated before investing in them. The table below gives a brief comparison of how mutual funds and fixed deposits differ.
| Features
Returns
Withdrawal
Risk
Tax
Lock-in period required
a Regulator |
Mutual Funds
The returns on mutual funds are dependent on the stock market performance.
Mutual funds can be withdrawn from the market and redeemed when the investor wishes. Certain costs are associated with the process.
The risk for each fund differs as per the behaviour of the market.
Mutual fund receipts are either taxed as short-term or long-term capital gains. Short-term capital gains are taxed at the rate of 15% and long-term capital gains are taxed at the rate of 10%. Long-term capital gains are 20% post-indexation.
No
Securities and Exchange Board of India |
Fixed Deposits
FDs provide returns that are specified in advance for a fixed period.
FDs carry a penal charge if they are prematurely withdrawn.
The risk associated with FDs is nil as it provides guaranteed returns.
Fixed deposits are subject to a tax of 10% for income of more than Rs. 10,000 in a year.
Yes,
the Reserve Bank of India |
A fixed deposit calculator and a mutual fund calculator require you to enter basic details like the amount to be invested, rate of interest, and the period for which the investment has to be done. The mutual fund calculator will provide an option to select between the investment strategy according to the risk appetite of an investor. The fixed deposit calculator helps in computing the expected earnings in advance to make a wise investment decision.
The question that whether fixed deposits and mutual funds are better remains a big question. The answer to this depends upon the risk tolerance levels of an investor. Both these investment avenues can be used as emergency funds or funds for a specific financial goal.
Benefits of mutual funds and fixed deposits
- Mutual funds are managed by experts in the industry and there is no need to tap the market continuously.
- Mutual funds offer better returns than fixed deposits depending on the risk and the funds that are chosen.
- Mutual funds offer investments to be done with smaller amounts.
- Taxation benefits for mutual funds are better than fixed deposits.
- Fixed deposits have a very low risk associated with them
- Fixed deposits offer guaranteed returns on the investment made.
- Fixed deposits are a secure way of investing money, especially for senior citizens.
A wealth perspective on both mutual funds and fixed deposits answers why mutual funds are better. If the market is on an upward trend, the growth of mutual funds is expected to be more. The principal amount also increases. On the other hand, fixed deposits do not in any case experience an increase in the principal amount of investment.
Fixed deposits have always stolen the limelight when the question arises of which option is better. The senior members of the family are prone to select fixed deposits because it has stood the test of time and has been a safe and secure way to invest for a long time. With time and advancements in the field of finance and technology, there have been many instruments that are introduced in the market. Mutual funds are the most common ones. Today, there are countless options available for one to invest.
A proper comparison between the two alternatives and a clear vision of your financial goals helps you to select better when it comes to investment. All the parameters should be evaluated and the need for investment should also be assessed. To conclude, we can state that both the alternatives have their pros and cons and one should be aware of all.
