New Delhi: Fixed Deposits and Mutual Funds are one of the very popular investment options. After working hard, people tend to save the money diligently. These days, there are several investment options available in the market which makes it difficult to choose the right one.
The art of building more wealth for yourself depends on where you invest your hard-earned money. One needs to consider inflation before investing in any scheme. If one fails to assess the impact of inflation in future and takes one wrong step in investing, the individual may end up getting returns less than inflation.
In this article, we inform you about the differences between Fixed Deposits and Mutual Funds using parameters like risk, return, investment amount so that it becomes easier for you to choose the right investment option as per your requirements.
What are Fixed Deposits?
Fixed Deposits are traditional investment schemes which are very popular in the country. If any one has a sum of money and plans to invest somewhere and earn fixed interest on the same, then FD plans are the mode of investment you need. FD is also called a term deposit. This tool allows an individual to invest a lump sum for a fixed tenure in a bank, NBFC, or Post Office.
The invested money is safe as the returns are guaranteed due to pre-determined interest rates. The interest rate on Fixed Deposits varies from lender to lender. Since the returns are not market-linked, fixed deposits are considered a relatively safe, risk-free option. Some banks offer insurance coverage on the FDs if it collapses due to financial distress.
The banks offer higher interest rates on fixed deposits opened by senior citizens. The FDs are considered to be the best choice for the conservative investors who want fixed and stable returns.
What are Mutual Funds?
A Mutual Fund (MF) investment does not generate guaranteed returns as it is based on the stock market movement. The returns of MF depends on the performance of underlying assets like, stocks, bonds, gold, silver etc.
The Mutual Fund is a type of investment in which scores of investors invest money in a diversified portfolio of stocks, bonds and gold or other assets. MFs are managed by professional Fund Managers who invest your money in various asset classes.
The Mutual Fund investment is risky, but can generate greater scope for returns. MFs are managed by the professionals who take the decisions where to invest the money. One of the biggest factors is that the investors’ money gets deposited into a variety of assets. Systematic Investment Plan (SIP) enables an investor to enter the market with low monthly installments like Rs 250, Rs 500, Rs 1000. With professionals managing your money, the investors need not have to manage their accounts on a daily basis.
How to invest in Mutual Fund and FD
Mutual Fund investors are required to open a MF account with the asset management companies or through mutual fund distributors. After the account is created, the investor can opt a Mutual Fund as per the financial goals. After selecting the MF scheme, investors can either opt for lumpsum or SIP for investments.
While choosing a Fixed Deposit plan, the depositor should study about the interest rates being offered by the various banks and other financial institutions. A person can invest in a FD scheme by either visiting the lender’s branch or online. After registration, an investor has to select the tenure and invested amount.
Fixed Deposits assure guaranteed returns and are considered to be risk-free. Mutual Funds are risky due to their market exposure but there is a possibility of getting higher returns. The investors should make their choice between Fixed Deposit and Mutual Fund depending on their preferences and risk appetite.