A fixed Deposit (FD) is a financial instrument provided by banks which provides investors with a higher rate of interest than a regular savings account, until the given maturity date.
A Mutual Fund is an investment vehicle made up of a pool of funds collected from many investors for the purpose of investing in securities such as stocks, bonds, money market instruments and similar assets.
Must Read : How Mutual Funds Work.
Fixed Deposits Vs Mutual Funds
| Mutual Funds | Fixed Deposits |
| Return earned varies with the market conditions. | They earn pre-specified rates and do not change for entire tenure. |
| In case of redemption within a year, they would be charged exit load maximum of 1%. | In case of premature withdrawals, they have to pay penalty and miss on actual returns. |
| High inflation-adjusted returns | Low inflation-adjusted returns. |
| High liquid. | Low liquid till the tenure of deposit ends. |
| Tax benefit under 80C if invested in ELSS mutual funds. | Tax benefit under 80C for investment in 5 year tax saving FDs. |
| LTCG
1. Equity MF – Nil 2. Debt MF – 20% indexation. STCG 1. Equity MF – 15% 2. Debt MF – Tax Slab |
Tax depends on your current slab rate, irrespective of the tenure of Fixed Deposit. |
| Debt Mutual funds have more risk. Equity Mutual funds have higher than Debt MF. | FDs have minimal risk. |
| Mutual Funds have the option of monthly investments known as SIP. | In FD it is only has one time investment option. |
Comparing mutual fund returns with fixed deposit returns
| Fixed Deposits | Debt Mutual Fund | Equity Mutual Fund | |
| Investment Amount | 100,000 | 100,000 | 100,000 |
| Return (% p.a.) | 9.0% | 9.0% | 9.0% |
| Holding Period | 1 Year | 1 Year | 1 Year |
| Fund Value | 109,000 | 109,000 | 109,000 |
| Inflation | 7.5% | 7.5% | 7.5% |
| Indexed Investment Amount | – | 107,500 | – |
| Taxable Income | 9,000 | 1,500 | – |
| Tax Paid (as applicable) | 2,700 | 300 | – |
| Post Tax Returns | 6,300 | 8,700 | 9,000 |
| Post Tax Returns (%) | 6.3% | 8.7% | 9.0% |
(The rate of return and rate of inflation is an assumption, for illustration purpose only)
As you can see the post tax returns for Equity Mutual Funds & Debt Mutual Funds is higher when compared to Fixed Deposits, it is profitable to invest in MUTUAL FUNDS at WWW.InstaEMI.com
