Mutual Funds Or Fixed Deposits: Which Investment should You Choose

Choosing the right investment vehicle is probably one of the toughest financial decisions you’ll ever make. However, you can ease your dilemma by understanding your financial requirements and standing.

Mutual Funds and Fixed Deposits are two of the most popular investment schemes amongst Indians. They come with their own set of advantages and disadvantages. For example, Fixed Deposit interest rates in India are less attractive than the returns offered by Mutual Funds. Here, you can take a look at these investment schemes and how you can benefit from them.

Mutual Funds

Mutual Funds or MFs are investment schemes that take money from different investors and put it in a variety of securities. You can choose the assets you would like to invest in. For example, you can pick from assets like stocks and shares, bonds, debentures, and other money market instruments. However, you should know that assets like stocks and shares are dependant on market fluctuations and you could lose money if a company fares poorly at the stock exchange.

You can invest in MFs through SIPs, also known as Systematic Investment Plan. This plan deducts money from your bank account and invests it regularly in the assets of your choice.

To be on the safer side, it’s always advisable that you maintain a diverse portfolio of both low and high-risk assets. Even if you lose money from the high-risk assets, it’ll be balanced by the returns earned from the low-risk ones.

Fixed Deposits

Unlike MFs, Fixed Deposits are safe investment schemes as they are not dependant on market fluctuations. If you want to invest in an FD, all you have to do is look for the best FD scheme and approach the bank or NBFC providing them. An FD allows you to choose the tenure. So, if you’re aiming for a short-term investment scheme, then you can choose an FD with a 6-month tenure. On the other hand, if you have long-term financial goals in mind, then you can invest in an FD with a 24-month tenure or above.

However, remember that the tenure of an FD affects the rate of interest applicable for it. Ideally, you should choose FDs that have high rates of interest so that you can earn maximum profits from it. But, remember that if you withdraw prematurely, you’ll lose a considerable amount of money. So, you should invest in FDs in a way that they meet your life goals. For example, if you’re saving for your child’s education, choose an FD tenure that ends right about when you will need to pay your kid’s fees. This way, you will not lose interest charges and will also be able to fulfill your financial needs.

Now that you know the difference between MFs and FDs, you can choose the investment vehicle that best suits your needs.

Arwind Sharma

Arwind Sharma is a financial advisor with an experience of more than 7 years. He has worked for topmost financial firms in India and has been a visiting faculty at many reputed institutes in India. Currently based in Pune, Arwind Sharma is a name to reckon with when it comes to financial management for big brands. A post-graduate in business economics, he is an alumni of Princeton University, USA. During his free time, Arwind teaches children from marginalised sections of society and also work on his blog.


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