Introduction:
When discussing investments, mutual funds are a popular option that you might consider. However, mutual funds come with a degree of investment risk, making you also think about fixed deposits. Since fixed deposits do not have any market risks, you may believe them to be the ideal investment choice.
But before making any decision, you must know the key differences between these two options. Let's get started.
What are Mutual Funds?
A mutual fund is a type of investment product that pools money from you and other investors. This money is then invested it in various assets, like bonds and stocks. All the investment decisions are taken by expert fund managers.
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What are the Benefits Of Mutual Funds?
Some key benefits of mutual funds:
- Mutual funds allocate the investment into a diverse portfolio of equities, bonds, and other assets. This with reducing potential investment risks.
- You can invest in mutual funds in a single payment or overtime via a systematic investment plan (SIP).
What are Fixed Deposits?
A fixed deposit is a financial deposit option provided by banks and non-banking financial companies (NBFCs), where you can deposit money for a set time and earn a predefined percentage of interest.
What are the Benefits of Fixed Deposit?
Here are some of the most common benefits of fixed deposits:
- FDs offer a fixed rate of return independent of market movements. The rate of interest on FDs is set for the duration of the deposit.
- There are tax saving fixed deposits also available where you not only earn interest income but also save on your income tax liabilities.
What are the Differences Between Mutual Funds and Fixed Deposits?
Some key differences between mutual funds and fixed deposits are as follows:
| Parameters |
Mutual Funds |
Fixed Deposits |
| Returns |
Linked to the market |
Fixed returns |
| Liquidity |
Usually high |
Low |
| Risk |
Fluctuates |
Low |
| Flexibility |
High |
Low |
| Withdrawal |
Allowed |
Allowed (with penalty) |
Conclusion
To decide which one is a better investment option is a subjective choice. Both mutual funds and fixed deposits have their pros and cons. However, both are considered good options if you can align them with your investment goals and risk capacity. The ultimate investment choice is yours and a decision must be made only after careful analysis.
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