Mutual Funds vs Fixed Deposits

Thanks to the “Mutual Funds Sahi Hai” campaign there’s a greater understanding of Mutual Funds in India these days. However, when it comes to the details, most of us still find it very difficult to comprehend. This complexity leads to most of us settling down for relatively easier and more prevalent investment alternatives like FD & Real Estate.

In this article, we compare Mutual Funds against Fixed Deposits on the parameters we think are most important. Please be cautioned that this is not the exhaustive list of differences and one should always consult a Registered Advisor/ distributor to understand the investment options best suited for oneself.

	Mutual Funds	Fixed Deposits
Regulator	AMFI under SEBI	RBI - Reserve Bank of India
Safety of Capital	Most of Mutual Funds do carry Volatility. This said you can choose a fund that suits your risk profile. It is advised to hold Mutual Funds for 10+ Years to minimize investment risks.	Yes, largely. Plus, DICGC providesa guarantee of upto Rs. 5 Lacs
Returns	Largely higher than FDs - Depends upon the Type of Funds & Holding period.	Generally lower, fixed but guaranteed returns.
Expenses	0.1% - 2.5%	No expenses occur during the tenure
Lock-in period	No (Except for Closed Ended Funds)	Yes - Largely amount is locked for Investment Tenure.
Withdrawal	The amount can be withdrawn anytime from Open-ended schemes. Exit Loads are applicable for up to 1 Year of Investments.	Premature withdrawal could invite a penalty.
​Offered by	Asset Management Companies	Banks and NBFCs
Liquidity	Higher Liquidity profile	Relatively restricted liquidity profile
Minimum Investment	500	5,000

Mutual Funds generally are better alternatives if you have a longer investment horizon of more than 10 Years. Mutual Funds also offer better ways of transacting Like SIP (Systematic Investment Plan), STP (Systematic Transfer Plan) & SWP (Systematic Withdrawal Plan). More on these in our next blog.