Mutual Fund vs Fixed Deposit

If you want to build your wealth and bring financial stability to your life, investing is the only thing that can help you get there. Saving is however, the first step to begin investing. Although, you need some knowledge in order to invest your money at the right place. However, you can lose your money to inflation, if you do not invest your savings. Mutual Fund vs Fixed Deposit is a common topic for debate when it comes to investment options. Investors consider FD as one of the oldest and safest savings instruments with a fixed rate of return. Whereas Mutual Fund, on the other hand, might help you earn greater returns but without a guarantee for the same.

Fixed Deposit

Fixed Deposit, also known as FD, is a popular saving instrument that banks provide for short-term as well as for long-term investments. The rate of returns for Fixed Deposit is fixed and is pre determined by the Indian Government. Because the government of India has predetermined the rate of returns on the Fixed Deposits, the growing inflation does not impact the returns on these investments.

Bank Fixed Deposit can range anywhere from 7 days to 10 years. Mainly there are three types of FD’s, depending on their term. These are short term, medium term or long term fixed deposits. You can deposit a lump sum amount of money which will incur a certain interest over a period of time. There is no pooling of funds by a group of investors and interest is known before you invest, therefore the returns have no impact by the market fluctuations. However, you should always keep in mind that any interest above INR 10,000 shall be subject to tax.

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Mutual Fund

Mutual Funds, on the other hand, depend on the market fluctuations with no fixed rate of returns. Investing in mutual funds can give you a 10% to 15% return on your investment, which is higher than you receive on fixed deposits. Mutual Funds are of three types i.e. Debt, Equity and Balanced. Debt Mutual Funds invest a majority of your amount in government, corporate bonds as well as securities and the remaining amount in equity markets. Whereas, Equity mutual funds, on the other hand would invest your amount more in the equity market and less in government, corporate bonds and securities. Balanced mutual funds invest partially in both Debt as well as Equity Funds.

Mutual funds are investing instruments that are made up of a bunch of stocks, bonds, equities and other marketable securities. Unlike Fixed Deposits, several investors come together to invest in mutual funds with a common goal. The total return is equally distributed among all the investors after deducting all the expenses. However, if you are a beginner and want to invest in mutual funds, you can begin with popular mutual funds like SBI Mutual Funds, Aditya Birla Mutual Funds, Axis Mutual Funds, and many others.

Difference Between Mutual Fund & Fixed Deposit

It is very confusing whether to invest in mutual fund vs fixed deposit. However, you should have adequate knowledge about the two to start investing in any of them.

Returns on Investments

A Fixed Deposit gives you fixed returns over a predetermined period of time. The returns will not change throughout the tenure of your investments. Whereas mutual funds on the other hand, are market linked therefore they offer higher returns on long term investments. The longer your investment tenure, the better your returns on mutual funds.

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Rate of Return

The rate of return on your fixed deposit generally depends on your investment tenure as well as the type of FD. Therefore, they do not give a high rate of return. On the other hand, mutual funds depend on market volatility and the type of fund that you are investing in. When the market is high, you can receive higher returns and vice versa.

Tax Savings

Investors generally prefer FDs to save taxes under section 80C of the IT Act before the 5 year lock-in period. However, after the completion of their 5 year lock-in period investors consider the (ELSS) Equity Linked Savings Scheme Mutual Funds as their alternative approach. Moreover, ELSS has the lowest lock-in period of 3 years and provides better returns to investors.

Risk Factors

Fixed Deposits are the safest form of investments with almost zero risk as the returns on the investments are pre determined. Whereas Mutual Funds on the other hand, are investments that happen in the financial markets that involve a lot of risk. Talking about the risk in mutual funds, the equity mutual funds possess higher risk than the Debt Mutual Funds. Equity mutual funds invest a majority of the amount in the stock market which makes it even more risky.


Inflation does not impact the fixed deposits because the returns come with a guarantee. While mutual funds are subject to inflation as returns are usually inflation adjusted which enables mutual funds to generate higher returns. 

Which One Should You Choose?

Investing in FD or mutual funds can still be confusing but it however, depends on your risk capacity and the amount that you are willing to invest. However, you can start investing in a fixed deposit with a lump sum amount. Whereas, you can start investing in mutual funds with amounts as low as INR 500. However, looking at the current COVID situation, investing in fixed deposits would make a much better choice as the returns come with a guarantee, which would eventually help you in achieving your investment goals.

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