Difference Between Fixed Deposit and Mutual Funds

By : Mahi

Fixed deposits and mutual funds are both popular investment options, but they have different characteristics and offer different benefits. Here are the key differences between the two:

Returns: For a certain length of time, fixed deposits give a guaranteed return. At the moment of investment, the rate of interest is predetermined


and remains unchanged throughout the investment period. Contrarily, mutual funds invest in a portfolio of stocks, bonds, and other assets,

and their returns are based on changes in the market. Fixed deposit returns might be higher with mutual funds, but the risk is also larger.

Risk: Because fixed deposits give a fixed rate of return and are government-insured up to a specific amount, they are regarded as low-risk investments.


On the other hand, since the returns are not certain and are based on market volatility, mutual funds are riskier.

Liquidity: Financial assets have a set lock-in period, which prevents investors from withdrawing money without paying a penalty before the maturity date.


Conversely, mutual funds provide more liquidity since an investor may withdraw money from them at any moment and without incurring any fees.

Investment amount: The minimum investment amount for fixed deposits might vary from bank to bank.


Investors can start investing in mutual funds with as low as a few thousand rupees because there is no set minimum investment amount.

Taxation: Depending on the investor's income tax level, interest on fixed deposits is taxed. Depending on the kind of mutual fund and the holding period, mutual funds are taxed differently.

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