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Mutual Fund vs Fixed Deposit

Both mutual funds and fixed deposits are a popular choice among investors. Each of these financial instruments are unique and provide investors with good returns over a period of time.

If you want to invest in either of these financial instruments, it is advisable to make a stern comparison between the two. Here is a list of differences between Mutual Funds and Fixed Deposits.

Difference Between Mutual Funds and FD

CriteriaMutual FundFixed Deposits
ReturnsMutual Fund returns are linked to the market they invest in and are completely dependent on the performance of the stock market. Fixed deposits offer fixed and guaranteed returns at a predefined rate of return over a specific time period.
RiskThe risk involved in a mutual fund varies from fund to fund, it is mostly influenced by the market.FDs carry zero risk as the depositor will receive guaranteed returns at a fixed interest rate.
ExpensesMutual Funds carry certain charges and expenses which are deducted as a part of managing the fund.FDs do not come with any expenses over the course of initiation or tenure of deposit.
WithdrawalYou can withdraw from a mutual fund free of charge after a given point of time. For withdrawing before the stipulated time charges levied will be that of 1% in the form of exit load. Depositors who wish to make a withdrawal will have to break their FD and pay the penalty for the same during premature withdrawal.
TaxationAll mutual funds are subject to short term and long term capital gains tax. STCG is charged at a flat rate of 15% whereas LTCG is charged at 10% of the earnings above ₹1 lakh. In case of debt funds, LTCG is 20% post indexation. FDs are subject to 10% TDS on interest earned above ₹10,000 over a financial year.

Returns in Mutual Funds

The returns on a mutual fund depend on the type of fund and the tenure of investment. An equity based mutual fund of a large cap company can bring about 15%-20% returns over a period of 3-5 or more years.

Long Term Mutual Funds with up to 18% Returns

Here is a list of top 5 long term mutual funds which offers returns up to 18%. Long term mutual funds invest primarily in large cap companies and are ideal for an investment horizon of 5 years or more. These funds are usually invested in stocks of highly stable Bluechip companies which have withstood market volatility over the past successive years.

Fund NameReturn % (5 years)
L&T India Value Growth21.65
Mirae Asset India Equity Fund Regular Growth18.65
Aditya Birla Sun Life Frontline Equity Fund Growth14.44
SBI Magnum Multicap Fund Regular Growth18.22
SBI Bluechip Fund Regular Growth14.24

Mid Term Mutual Funds with up to 14% Returns

Midterm mutual funds are those which have an investment horizon of 3-5 years. These funds invest in stocks of companies with medium market capitalizations. Over the recent years, midcap companies have successfully outperformed large cap investments. This is primarily because of the growth among micro, small and medium enterprises over the past 10 years.

Fund NameReturn % (3 years)
L & T Midcap Fund18.26
Aditya Birla SL Pure Value Fund17.62
DSP BlackRock Midcap Fund 16.77
Kotak Emerging Equity Scheme15.34
HDFC Midcap Opportunities Fund14.84

Short Term Mutual Funds with up to 8-10% returns

These funds come with an investment duration of 15-91 days to one year. Short term mutual funds usually comes with a maturity value. They are suitable for investors with a low appetite for risk. Ultra-short debt funds also come under this category. The major portion of short term mutual funds comprises of debt funds and government bonds.

Fund NameReturn % (1 year)
HDFC Corporate Bond Fund7.09
Aditya Birla Sun Life Corporate Bond Fund7.55
ICICI Prudential Banking and PSU Debt Fund – Growth6.16
ICICI Prudential Short Term – Growth Option6.37
Reliance Prime Debt Fund7.33

Returns in Fixed Deposits

FDs are different from mutual funds. A mutual fund provides return on the amount invested, while an FD provides interest based return on the amount deposited. The returns on a fixed deposit are fixed and predefined at a standard rate of interest. This rate of interest is declared by bank based on RBI declared rates and varies from bank to bank.

Long Term Fixed Deposits of 5 years

Unlike normal FDs, these come with a mandatory lock-in period of 5 years. Under this FD, you are entitled for tax benefits of up to ₹1,50,000 as per Sec 80C of the Income Tax Act, 1961.

Name of BankFD Interest Rates
Shriram City Union
8% - 10.77%
RBL Bank
Deutsche Bank
Shriram Transport Finance
LIC Housing Finance

Mid Term Fixed Deposits of 3 years

Mid Term Fixed Deposits come with an investment period of 3 years. Investors enjoy an interest rate of 8%-9.4% on their deposits.

Name of BankFD Interest Rates
Shriram City Union
8% - 9.84%
RBL Bank
Shriram Transport Finance
India Post Office
LIC Housing Finance

Short Term Fixed Deposits of 1 year

A one year Fixed Deposit is the most popular type of FD offered by banks. You can even open a FD account online for a duration of 1 year via net banking if you already have a bank account. Under this scheme, investors enjoy a rate of interest of 8%-8.75% over an investment tenure of 10-15 months.

Name of BankFD Interest Rates
Shriram City Union
8% - 8.75%
RBL Bank
Bandhan Bank
Mahindra Finance
Shriram Transport Finance

Benefits of investing in Mutual Funds

  • Mitigates risk through diversification of investment.
  • Comes with a minimum investment of ₹500 or Rs.100.
  • Offers high returns, especially from equity based mutual funds.
  • Funds are managed by professional financial experts on your behalf.
  • Surplus amount can be easily allocated to the existing portfolio via top-ups.
  • Various modes of investment - Systematic Transfer Plan, Systematic Investment Plan, Lump sum.

Benefits of Investing in Fixed Deposits

  • Comes with zero risk as it is government backed.
  • Provides guaranteed rate of returns.
  • Entitled to tax deductions of up to ₹1,50,000 as per Sec 80C of the Income Tax Act, 1961 for an FD over 5 years in tenure.
  • Interest income earned by senior citizens on FDs of up to ₹50,000 are tax exempt under Sec 80 TTB of the Income Tax Act, 1961.

FAQs on Mutual Funds vs Fixed Deposit

Is mutual fund better than fixed deposit?

In terms of risk, a FD is a better option as it carries zero risk. In terms of returns, a mutual fund has an upper hand.

Do we get interest on mutual funds?

No, you get returns on mutual funds based on the performance of the fund in the market and sector it has invested in.

How do mutual funds pay?

Every mutual fund has specific investment criteria, on the basis of this, you will receive returns as per the performance of the sector and market the fund has invested in.

Is FD a good investment?

Yes, it is one of the safest investments as it comes with guaranteed returns and a fixed interest rate.

Is it a good idea to invest in Mutual Funds?

Yes, if you are looking for a long term investment which offers market-linked returns, a mutual fund is an excellent investment option.

Is Mutual Fund is safe?

No, since mutual funds offer market-linked returns, they carry some amount of risk arising out of market volatility.

What is mutual fund?

A mutual fund is a pool of money created by investors who pool their money together which is in turn invested in the capital markets by an expert and professional fund manager.

What is the interest rate on a mutual fund?

There is no interest rate applicable on a mutual fund investment. It generates based on the performance of the market or sector in which it invests.

What kind of investment gives the best return?

Currently, a ULIP scheme gives the best of return along with life cover.

Where can I invest my money for a better return?

There are various investment avenues one can look at. One must determine his investment and risk capabilities to determine the best investment tool from available options like Life Insurance, mutual funds, fixed deposits, etc.

Which bank gives highest interest rate in India?

All banks have their predefined interest rates for FDs. It is advisable to check the official website of the bank before making any investments.

Which bank is good for FD?

All banks have their predefined interest rates for FDs. It is advisable to check the official website of the bank before making any investments.

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