FD vs Mutual Funds – Check This Guide Before Investing!

byPriyanka JuyalLast Updated: April 17, 2024
FD vs mutual fund

Choosing between fixed deposits and mutual funds can be challenging, as both have their advantages and disadvantages. Fixed deposits offer little to no market risk, while mutual funds are subject to market conditions. Banks offer fixed deposit services, while mutual funds are offered by fund houses or asset management firms.

This blog will explain the differences between FDs and mutual funds, as well as which may be the best investment option for you.

Comparative Difference Between FD vs Mutual Funds

The following points define the comparative difference between FD vs Mutual funds:

What is a Fixed Deposit Account?

A fixed deposit, also known as a ‘term deposit’ or a ‘time deposit,’ is an investment product offered by banks and non-banking financial institutions (NBFC). It is the safest investment instrument among many others because it allows users to deposit a lump sum amount with the financial institution for a specific period. In addition, FD provides users with a plethora of other features such as:

  • You can earn interest on the deposited amount for the pre-decided tenure, as per the rate of interest locked earlier
  • Once locked in, the interest rate is unaffected by market or interest rate fluctuations
  • You can earn interest either regularly or when your FD matures
  • A fixed deposit amount cannot be withdrawn before the maturity date, and if someone does want to withdraw the amount, he or she must pay a penalty.

What Are the Benefits of a Fixed Deposit Account?

A fixed deposit account offers several advantages that differentiate it as a unique and risk-free investment option:

  • Fixed deposits are considered a safe investment option because the interest rate does not fluctuate with changing market conditions.
  • Banks offer assured rates of interest on fixed deposits, and you can use the FD calculator available on the bank’s website to determine the interest you will earn.
  • Many banks offer tax-saving fixed deposit options.
  • You can open a fixed deposit account both offline and online
  • Banks allow you to reinvest the FD amount after maturity, allowing you to earn compound interest on the principal value.
  • Fixed deposits offer flexible tenure options, ranging from 7 days to 10 years.
  • Banks make it easy for you to obtain loans against the value of your fixed deposits.

Who Should Invest in Fixed Deposit?

The following individuals can open a fixed deposit account:

  • Someone unwilling to take market risks
  • Individuals with taxable income can invest in FDs
  • A retired person who wants a continuous source of income can apply for FD schemes
  • Housekeepers with sufficient funds can compare various FDs and choose the best one for them

What Are Mutual Funds?

Mutual funds are another type of investment instrument in which an asset management company or fund house pools investments from both individual and institutional investors. The process is then completed when a fund manager purchases securities such as bonds and stocks from the market in line with the investment mandate. Mutual funds are regarded as one of the best ways to diversify investment portfolios.

What Are the Benefits of Mutual Funds?

Given below are several reasons a person should or try investing in a mutual fund- 

  • Fund managers manage mutual fund investments
  • Asset management firms and fund houses pool mutual fund investments
  • There is no lock-in period 
  • Mutual funds provide fund plans, making them an attractive option for investors seeking to achieve both short and long-term objectives
  • It is simple to switch funds. If necessary, an investor can transfer his or her investment to a different fund within the same fund house
  • Mutual funds are inexpensive, making them a convenient and suitable option for small investors.
  • Investment can be made via SIP (Systematic Investment Planning). The frequency of SIPs can be monthly, quarterly, or biannually
  • Buying and selling of the fund units are made at the prevailing net asset value of the mutual fund plan
  • An investor can keep track of his or her mutual fund investments
  • The amount invested in mutual funds is eventually allocated to various assets and shares of various companies
  • Mutual funds provide two advantages: SIP and no lock-in period
  • Mutual funds provide liquidity
  • Mutual fund houses and mutual fund plans are regulated by the Securities and Exchange Board of India (SEBI) and the Reserve Bank of India (RBI)

Who Should Invest in Mutual Funds?

People who can invest in mutual funds are as follows:

  • Anyone who wishes to achieve a short or long-term financial objective
  • If you want to earn more money than a regular savings account
  • Anyone looking to diversify their investment portfolio

FD vs Mutual Fund- The Best Option to Invest In?

Before investing in FDs or mutual funds, it is best to review all of the features, benefits, limitations, risk factors, short- and long-term financial goals, liquidity, and other factors. After comparing the basic differences between FDs and mutual funds, the next step is to compare different banks, asset management companies, and fund houses in terms of services, fund management practices, and so on. The final step before deciding on the best investment instrument is to understand the market conditions and your personal needs.


Can the amount invested in a fixed deposit be withdrawn before maturity?

Yes, it is possible to withdraw the invested amount in a fixed deposit before it reaches maturity, but there may be penalties or fees involved.

Is it possible to open a fixed deposit online?

Yes, customers can open a fixed deposit online by logging into the online portal of their bank. This allows them to complete the process from home without visiting a branch in person. It's important to compare different FD options and read the terms and conditions before opening an FD online.

What is the current interest rate on mutual funds?

The interest rates on mutual funds vary depending on the fund house and asset management company.

Can salaried professionals invest in mutual funds?

Yes, salaried professionals can invest in mutual funds. Mutual funds pool money from various investors to buy a diversified portfolio of stocks, bonds, and other securities, providing access to a wide range of assets and helping to reduce risk.

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