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Fixed Deposits VS Mutual Funds – A Study On Which Is Better To Be Invested On

To save money, people usually choose Fixed Deposits– as they seem to risk-free. The safety and secured view of having your money in the banks seems to be great. But is it really the right way to save money or is it a way to lose it? So here we have compiled an analysis of fixed deposits vs mutual funds.

Fixed Deposits VS Mutual Funds

On paper, FDs look like they give pretty attractive returns. But what one doesn’t realize is that with the present tax slab, the one a person invests in FD, the more tax he or she has to pay.

When considering the inflation rate over the years, one can supposedly face a loss in their FD investments.

Meanwhile investing in Mutual Funds is a different game. MFs depend on market volatility. Mutual Funds also have a lot of risks. MFs are taken care off, by professional fund managers. They do their best in not only protecting investments but also in growing it.

In returns’ rate, FD rates are pre-specified. They don’t change for the entire duration. Meanwhile, MF rates are impacted by the conditions of the market. So positive market conditions lead to high returns in MFs (FD rates are not affected).

Risk Factor

While considering the risk factor, Fixed Deposits are minimal. Equity Mutual Funds have high risks, and debt Mutual Funds have lower risks than equity. Risks can be mitigated to a certain level as MFs are always managed by experts. But still, MFs have a higher market risk factor. Anyways, risks are meant to be taken and give bigger returns.

Also read – Mutual Funds Colour Coding And Its Significance

A fixed time duration is applied to Fixed Deposits. They have low liquidity for the duration of the deposit ends. While Mutual Funds offer high liquidity. It in on the condition that the minimum period of holding has passed and subject to lock-in-period is applicable.

In premature withdrawal cases, Fixed Deposit holders pay a penalty. They also miss out on a slice of expected returns. An exit load is charged by MFs (if investments are withdrawn in a very short period usually under a year). Some Mutual Fund schemes provide higher liquidity. Withdrawal of funds can be done at any point in time, without any additional charges.

Tax Status

While choosing FDs and MFs one should consider the tax status. It is a very important factor to be considered. For Fixed Deposits, levied tax depends on the current tax slap (the duration of the FD doesn’t matter). Meanwhile, the MFs’ tax status depends on its category. Equity funds held for more than a year are not taxable. 15% is taxable for short-term equity funds. 20% is taxable for long-term debt fund gains, with indexation and 10% without indexation. Short-term capital gains are taxable depending on an investor’s tax slab.

Mutual Funds are more tax-friendly when compared to Fixed Deposits. Long-term equity fund gains are not taxable.


Moreover, Fixed Deposits vs Mutual Funds depends on the risk capacity factor for an investor to invest on. If things seem good, and economic growth is expected, then it is better to invest in Mutual Funds due to a possibility of returns.

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About the Author: Praveen Unnikrishnan

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