When it comes to investments, the safe bets in the market are mutual funds and fixed deposits. They are usually a low-risk form of investment, providing investors good returns over time. However, certain differences between the two make one attractive from the other and vice versa.
- Returns: Fixed deposits provide investors with a pre-determined interest over a specific period. Means, any amount of money that you place in an FD will accrue a fixed return. However, you can receive higher returns via mutual funds since the investment here are made on the basis of the market performance of the stocks.
- Risk: Fixed deposits are risk-free investments. Here the individuals are aware of the returns they will receive. Mutual fund investors, on the other hand, are susceptible to change in the market, though the risk involved is spread over various stocks within the fund. So, it all comes down to the market conditions.
- Costs: Mutual funds includes additional payment such as fees paid to the fund managers who handle your portfolio. Meanwhile, fixed deposits incur no extra expenses since there is no involvement of intermediaries.
- Premature withdrawal: If you wish to make an early withdrawal from your fixed deposit, you have to pay the penalty. Besides the penalty, the individual will also lose out on some of the returns that they were expecting. Mutual funds allow premature withdrawals as long as the minimum holding period has been completed.
Ultimately, the tug of war between fixed deposits and mutual funds is dependent on your financial status and goals. So, make a wise choice!