Why Mutual Funds better than Fixed Deposits?

Why Mutual Funds better than Fixed Deposits?

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.

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. 

               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%

 

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Why Mutual Funds better than Fixed Deposits?

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...

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