Choosing between mutual funds and fixed deposits for investment is challenging. Both have unique characteristics, advantages, eligibility requirements, market risks, and other aspects. In contrast to mutual funds, fixed deposits are either completely or barely exposed to market risk. Banks offer fixed deposits, while people can make mutual fund investments through fund houses or asset management companies.
Before choosing where to invest, one should weigh the differences between mutual funds and fixed deposits. The differences between FDs and mutual funds will be discussed in this article to help you make a wise investment decision.
What is a Fixed Deposit?
A fixed deposit is an investment option provided by banks and non-banking financial institutions. It is often referred to as a “term deposit”. Since consumers can deposit a large quantity of money with a banking institution for a set time, it is the safest investment tool among many others.
Additionally, FD offers customers a wide range of additional functions, including –
You can accrue interest on the deposited money at the interest rate offered by the bank or NBCF for the predetermined duration.
Market or interest rate volatility has no impact on the interest rate once it has been locked in.
A set deposit amount cannot be removed before the maturity date; if it is, then a penalty must be paid.
What are Mutual Funds?
Another investment instrument is a mutual fund, which combines investments from individuals and institutional investors. When a fund manager makes market acquisitions of securities like bonds and equities in accordance with the investment mandate, the procedure is complete. One of the best methods to diversify investment portfolios is through mutual funds.
What distinguishes mutual funds from fixed-deposit accounts?
The comparative differences between FDs and mutual funds are as follows:
Mutual funds are a great option as they can provide comparatively higher returns than FDs. But if you don’t want to take any risk, then FDs are the right option for you.
However, target maturity funds can be a good alternative to fixed deposits for investors who are willing to take on a moderate level of risk in exchange for the potential for stable returns. It is important for investors to carefully consider their investment objectives, risk tolerance, and time horizon before deciding whether a target maturity fund is right for them.