Mutual Funds Vs Fixed Deposits: Which is a better investment?

Last updated:
Mutual Funds Vs Fixed Deposits: Which is a better investment?

Mutual Fund Vs Fixed Deposits: An Overview

Today, the financial market is filled with investment opportunities where at least something is available for all types of investors, be it a long-term retail investor or a risk taker who likes to explore the maximum options. Now if we consider the common-preferred zone, then out of the lot the two most traditional and highly preferred investment options are mutual funds and fixed deposits.

Both of these investment options are ideally the safer investment opportunities available in the market as compared to investing directly in the stock market. However, one may override the suitability for you based on your financial goals and risk appetite. With the help of this article, you shall be able to explore the fundamentals of both fixed deposits and mutual funds and understand what shall be the best type of investment for you out of the two. Let us see how.

What are the Benefits of Fixed Deposits?

Fixed deposits are also called the term deposits. Such deposits help the conservative investors to lock in their money for a fixed period to avail of a fixed rate of interest. Such deposits are safe as they do not result in loss of corpus and help you steadily grow your investment. These can be easily opened with your bank or a financial institution. One can choose to open a fixed deposit account in an online or an offline mode by submitting the required form and personal details to your serving bank. 

Such fixed deposits are also available in different types and have specified rates of interest available for people of the age below and above 60. The majority of the banks offer the topmost type of deposits in India. The appealing feature of a fixed deposit is that it has no risk of investment due to being governed by the Reserve Bank of India (RBI). 

Let us see some of the benefits of fixed deposits:

  • Fixed deposits as discussed helps you with a safe investment by securing your corpus. This induces a zero-risk period. These deposits are highly rated by RBI, and therefore take the risk of fraud and scams to stand out of the picture.
  • FD provides you with guaranteed returns on your investment. These deposits are convenient as they can be made at a click on your screens due to the flexibility of methods for applying for such FDs. 
  • FD plays a major role in providing a tax benefit. Such fixed deposits help you to avail yourself of deductions on your income as per the Income Tax Act 1961 and save you from bearing the extra cost of investment. 

FD comes in different types and therefore as per your investment objective, you can choose the type of FD you desire to invest in. You may avail a non-cumulative deposit to earn regular income on your investments or a cumulative one to earn the benefit of compounding.

What are the Benefits of Mutual Funds?

Mutual Funds in India have generally been an extremely popular choice of investment, specifically among the real-time investors of the country. It provides for moderate-risk and high returns and has been the favorite form of investment opportunity for the last two generations. Mutual funds at this age of investing proved with many options based on their investment objectives. Some mutual funds may appear to be lucrative due to their extremely high returns such as the small-cap funds but may entail huge risk as compared to the traditional fixed deposits. 

Mutual funds are also known to be the investment vehicles that are professionally managed to invest your corpus amount in highly rewarding options. Such experts usually analyze the market and match it with your investment goals to fetch you appealing returns on your investment. 

Let us see some of the appealing features of a mutual fund

  •  A mutual fund is generally easy on your pocket. You may start your investment journey in a mutual fund with a SIP as low as 500 Rs per month. Investing directly in mutual funds without any intermediary can also help you  save your brokerage  and commission fees 
  • Mutual funds are managed by expert fund managers of the capital market such as chief financial analysts. Such professionals carry out extensive market research and study the trends of market fluctuations. 
  • Apart from expert management mutual funds imbibe the investors with disciplined investment. The Systematic Investment Plan (SIP) in mutual funds helps you to create a steady habit of investing. An investor can also avail of an auto-debit facility for such SIPs where a fixed amount as per their convenience shall be automatically debited from the respective bank account per month.

Investing In Mutual Funds Vs Fixed Deposits

While both forms of investment have their fair share of advantages let us identify the major differences between the two. This shall help you to align the same with your financial goals and investment in the most suitable opportunity out of the two

  • Return on Investment: A mutual fund generally provides higher returns than a fixed deposit. However, a fixed deposit shall provide you with a fixed amount of return on your investment
  • Capital appreciation: As per the period and past trends, a mutual fund is generally suitable for a high capital appreciation. However,  fixed deposits shall help you with a guaranteed return as well as secure your corpus amount for that tenure.
  • Liquidity: Mutual funds such as the open-ended schemes, do not have a lock-in period. Therefore provide for higher liquidity than that of the fixed deposits. However, such withdrawals may incur exit loads which add to the cost of investment. No such cost is entailed in fixed deposits.
  • Regulatory Authorities: While both the investments are highly regulated to protect the interest of retail investors, mutual funds are primarily regulated by the Securities and Exchange Board of India (SEBI) whereas fixed deposits are mainly regulated by the Reserve Bank of India. 

Risk of Investment: Mutual funds are subject to market fluctuations and therefore have more risk associated with it as on being compared to a fixed deposit which entails no such risks. Therefore if you are someone with almost no risk appetite, fixed deposits shall be your best bet.

Top 5 Fixed Deposits in India as of August 2022

Let us look at the trending fixed deposits in India with their current interest rates

Name of the DepositRegular Interest Rates 
Sundaram Finance Fixed Deposit6.61%
IND Super Saver Fund (Powered by SBM Bank India)6.60%
Shriram City Fixed Deposit6.54%
Fincare Small Finance Bank Fixed Deposit6.50%
KTDFC Fixed Deposit6.00%

When you avail IND Super Saver FD, safety & trust are the two natural accompaniments.

Our partnership with SBM Bank India makes it easier for you to avail of fixed deposits at higher interest rates along with an easy & secure way to instantly withdraw your money within just 2 mins. Tap here to select a plan now!


Top 5 Mutual Funds in India as of August 2022

Following are some of the top preferred in India in 2022. Please note the figures mentioned below are subject to changes based on market conditions.

Fund Name3 years Cagr5 years Cagr 

Current NAV

(as of 12th August)

Quant Infrastructure Fund Direct-Growth39.96%23.60%23.23
ICICI Prudential Technology Direct Plan-Growth34.62%29.01%148.79
Aditya Birla Sun Life Digital India Fund Direct-Growth33.52%27.86%128.99
Tata Digital India Fund Direct-Growth32.25%29.88%36.36
SBI Technology Opportunities Fund Direct-Growth30.10%27.12%153.56

Both mutual funds and fixed deposits have their unique features and based on common financial goals can be flexibly adapted to the investor's requirements. If you are someone who is looking to diversify your portfolio, you can explore both the investment options and choose to make a suitable choice to avail the required financial freedom. Or you may choose the best option as per your desired objective. If we analyze the standpoint based on risk, certainly an FD is more lucrative than mutual funds. However comparing the returns on investment, an FD shall lack behind compared to mutual funds. Such decisions must be based on an extensive evaluation of your long-term goals as well as keeping in mind the economic and market conditions of the country.

  • Is mutual funds an alternative to fixed deposits?

  • Is a mutual fund bond similar to fixed deposits?

  • Which mutual funds give fixed interest rates like fixed deposits?