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Today, I am adding a very interesting article. I am sure, this will be very helpful to lots of people because, this is a clear cut comparison between mutual funds and fixed deposits. This article revealing the advantage and disadvantage of both investment instruments as well as cross comparing major benefits.
Fixed Deposits are the favorite for low risk profile people but who are unaware about the MF product that can also provide similar capital guarantee as well as more returns compare with FD’s. Most newbie investors are interested to mutual funds especially I am getting lots of queries when the stock market going through the bear face and the prices of all stocks coming down. A comparison of both will give an exact idea about both instruments to these guys.
1. FD is a pure debt instrument with enough guarantee to the capital.This is a suitable investment instruments for those who have very risk profile and always worrying about any kind of lose of there money. Where, mutual funds providing option to an investor to select funds depends on there risk taking capacity. Money market, debt and liquid funds are good for low risk profile investors to park there money and sleep well and equity, diversified and balanced fund options are there for investors who is ready to take risk as well as get good returns compare with the previous options.
2. Mutual fund returns to an investor is upon his fund selection and performance of that funds. A good diversified Mutual funds are able to deliver 8% to100% returns to investor in the place an FD can provide maximum 10 to 12% returns to the customer. Debt mutual funds are better than FD returns because they can go till 15% if the fund is a good one.
3. Return from the mutual fund investment calculating in the compounded basis but, FD returns are in flat rate.
4. Mutual fund investments are very good to beat inflation because of its large potential returns in the future. FD’s are clear loser against inflation because of its fixed return.
5. Equity MF is highly recommended for those in the age group of 20-40 but FD recommended for those who are near to pension age because he required guaranteed money after pension.
6. FD providing Tax benefit if it is for more than 3 years term Where ELSS MF only providing tax benefit with 3 years lock period.
In generally, mutual fund investments required little risk taking capacity compare with FD’s. Even though, there are funds in mutual funds that is designed for low risk profit investors. Debt, liquid and Fixed maturity Term plans are secure funds and providing capital protection. Where FD is fully secured and no need to worry about the return after the term.
Mutual fund can be invested using SIP (systematic investment plan) which will make an investor very disciplined and allow him to reasonable protection from volatility and stock market fluctuations. This means, the mutual fund directly associated to stock market. Where, FD’s with recognized financial institutions backed by Govt and not at all connected to stock market so the return will be fixed and sure.
Liquidity part is same for both mutual fund and fixed deposits.
Now you decide which is your better option as per your age, goal and risk taking capacity. Hope you will take a right choice. 