Are you a beginner at investing money? Do you know which might be a better option to go for, Fixed Deposit or Mutual Funds? Fixed Deposit is a traditional and typical system of investing money; at the same time, Mutual Funds are a growing way of money investment. This will create confusion in the mind of the new investors. Here is all the information you need to get a clear idea about which one you can go for. Read on to find out!
Contents
What are Fixed Deposits
Fixed Deposit is a form of investing that has been going on for a long time. People trust it, and it has been one of the most popular ways people choose to keep their money. Fixed Deposit means a system where you will receive a fixed amount of interest over a specified time or tenure to the investors. The period for Fixed Deposit is from 7 years to 10 years. The accrued interest rate is over the amount compounded in Fixed Deposit in the bank.
The only issue that comes with FD is the dropping interest rate. This will be a significant concern for senior citizens as they will get a low interest each year. Over the past 25 years, the rate of interest has been coming down. After the year 2020, the rate of interest is decreasing the bank sharply over FD. It is so down that the rate of interest will barely beat inflation. There is no comparison between Mutual Funds and Fixed Deposits, as the interest rate depends on the fixed tenure. So during these times, there is no protection from the upcoming inflation as the interest rate is very low.
What are Mutual Funds
Mutual Funds have an excellent level of popularity among retail investors. These rates of growth have increased over the last 20-25 years. This way of investment has increased by 17% from 20 years ago. Even if the development is significant, people fail to trust it. The scepticism around Mutual Funds still exists in people’s minds.
In the general description, Mutual Funds are just financial instruments. It is made by pooling money from several investors around the region. The unit holders have ownership over the stocks and bonds. These stocks and bonds are portfolios of Mutual Funds. You will have a lot of investment options according to your needs when you go for Mutual Funds.
Key Difference
Fixed Deposits and Mutual Funds have various factors on which basis they differ. Here is a detailed set of information which will help you understand the significant difference between both and you can choose the right one for yourself.
The first thing that everyone is concerned about is the safety factor. In Fixed Interest, safety is assured, and the only fluctuation that can occur is due to the bank’s financial strength. Rest is safe and secure. You can trust the system completely. On the other hand, with Mutual Funds, everything depends on the market price. The schemes are different and vary. The risk factor is high, and investors only put their money according to their risk appetite.
The next factor is Liquidity. In the case of Fixed Deposits, on premature withdrawals, there is medium to high Penalty Liquidity. If we look at the liquidity in Mutual Funds, open-ended funds have high liquidity. From the investment date, an exit load must be put on the withdrawals.
Returns are one of the crucial factors that matter when you are investing your money. Considering the Fixed Deposit form, the returns are assured, and you will get a return. When you go for Mutual Funds, the returns can be tracked from the future and according to Market Linked.
Another critical factor that will significantly impact the overall investment and amount is taxation. Fixed Deposit is where the tariff is according to the income tax slab of the investors. On the other hand, in the case of Mutual Funds, the taxation is a bit different. The tax advantage is from long-term gains. Here there is more chance of indexation benefits; the tax benefits are more investor friendly.
The last difference between Fixed Deposits and Mutual Funds is Investor interest Protection. The RBDeposites Fixed Deposits Investor’s Interest. On the other hand, the Mutual Funds investor’s interest is regulated by the SEBI.
Safety Parameters
The most important thing that first comes to the mind of an Investor when beginning with money investment and security. When you are going to put your money into something, you would like to have assurance about your money. When a comparison is made between Fixed Deposits and Mutual Funds, then the safer option to go for is Fixed Deposit. In FDs, you don’t have to worry about return; the return is completely assured. It is known to be the safest form of investment compared to all other options, as the interest and principal on maturing is guaranteed fully.
Investment through FDs is much easier and risk-free. As the respective banks control all the safety, you have fewer things to worry about unless and until you have chosen a reputed bank. At the higher level, the Reserve Bank of India controls all the banks and ensures the depositor’s money is safe. There is news about mishappenings too. But those are very rare and are mostly solved. So it can be said that Fixed Deposit is a much safer and safer option for investment in comparison to the system of Mutual Funds.
Mutual Funds often come with a high-risk factor. The investor’s portfolio of Stocks and Bonds diversifies the risk. It is always announced that Mutual Funds are Subject to Market Risk. There is no assurance of getting returns. This is why people with only a high-risk appetite go for it.
Final Thoughts
In the above points, there is a detailed description of the crucial difference between Fixed Deposits and Mutual Funds based on several factors. Both forms of investment differ on the grounds of Safety, Liquidity, Investor’s Interested Regulation, Returns and lastly, Taxation. Apart from that, a Fixed Deposit assurance return is highly safe for putting your money into it. Mutual Funds can give you high liquidity and return. Only if you can go for a high-risk appetite, then Mutual Funds can work for you. Understand both the system of investment and put your money wisely.
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