Which is the Better Investment: Mutual Funds or Fixed Deposits?

The financial market is currently flooded with investment opportunities. There is something for every investor, whether they are long-term retail investors or risk-takers who like to explore all of their options.

Regarding the common-preferred zone, fixed deposits, and mutual funds are the two well-known and popular investment alternatives.

Starting from a minimum amount of FD and mutual funds, they differ in many aspects. Depending on your financial objectives and risk appetite, one may take precedence over your suitability.

Fixed deposits

Term deposits are another name for fixed deposits. These deposits assist cautious investors in locking in their cash for a set length of time in order to take advantage of a set interest rate.

Such deposits are secure because they don’t cause corpus losses and aid in the steady growth of your capital. These are simple to open through your bank or another financial organization.

You can start a fixed deposit account online or offline by sending the relevant paperwork and personal information to your serving bank. Let’s look at a few advantages of fixed deposits:

  • As was mentioned, fixed deposits allow you to make secure investments by protecting your capital. Since the RBI gives these deposits a high rating, the possibility of scams and fraud is eliminated.
  • FD significantly aids the provision of a tax benefit. With the help of these fixed deposits, you can take advantage of income tax benefits and avoid paying additional investing fees.
  • You can select the FD you want to invest in based on your investment goals since various FD types are available. You can make a non-cumulative deposit for regular investment income or a cumulative deposit for compound interest.

Mutual funds

Particularly among the country’s real-time investors, mutual funds have historically been a very well-liked investing option in India.

For the past two generations, it has been the preferred type of investment opportunity since it offers excellent returns with moderate risk. Based on their financial goals, mutual funds have a wide range of possibilities in this day and age of investing.

Let us look at a few of the appealing characteristics of a mutual fund:

  • A mutual fund is typically inexpensive. You can begin investing in mutual funds with a monthly SIP of as little as 500 Rs. You can save the brokerage and commission fees by investing in mutual funds directly without using an intermediary.
  • In addition to professional management, mutual funds teach investors how to make disciplined investments. Using a mutual fund’s Systematic Investment Plan (SIP), you can develop a consistent investing habit.

    An investor may also use the auto-debit feature for these SIPs, which will automatically deduct a fixed sum from the relevant bank account each month based on their convenience.

FD vs. mutual fund

While both types of investment possess their merits, let us examine the key distinctions that distinguish them. This will enable you to align your financial objectives with the most beneficial investment opportunity available.

  • Return on Investment: Returns are constantly discussed on the topic of FD vs mutual funds. Compared to a fixed deposit, a mutual fund often offers higher returns. But a fixed deposit will guarantee you a set return rate on your money.
  • Capital growth: A mutual fund is typically appropriate for strong capital growth depending on the time period and patterns. However, fixed deposits will give you a guaranteed return and protect your corpus for that period of time.
  • Liquidity: There is no lock-in period for mutual funds, such as open-ended schemes. As a result, they give better liquidity than fixed deposits. Such withdrawals could be subject to exit fees, which raise the investment cost. Fixed deposits don’t involve any costs like that.
  • Investment Risk: When contrasted to a fixed deposit, which carries no such risks, mutual funds pose a higher risk because they are vulnerable to market fluctuations. Fixed deposits are, therefore, your best option if you have a low tolerance for risk.


Both fixed deposits and mutual funds have distinctive characteristics and can be adaptable to the investor’s needs based on shared financial objectives. If you want to broaden your investment, you can look at both possibilities and decide which would give you the necessary financial freedom.

You can also pick the best choice based on the goal you want to achieve. The minimum amount of FD is higher than that for mutual funds. An FD is undoubtedly more profitable than mutual funds if we assess the situation from a risk-based perspective. An FD will lag behind mutual funds in terms of returns on investment.