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#1 Duration in Mutual Funds

Generally, Fixed Deposits offer lesser returns on longer duration and mutual funds provide more. Fixed Deposits at present, provide the highest rate of interest for the period between one to two years. Mutual funds provide good returns the longer they are kept.

Short duration mutual funds

#2 Lock-ins for Investment

Fixed deposits offer lock-in periods of even less than a year (some even a few days) and can go up to a few years. In case of mutual funds, there are funds that permit a lock-in of less than a year and even of up to 5 years.

lock in mutual funds

#3 Returns for your value

While Fixed Deposits may seem like the guaranteed source of returns, mutual funds have shown high returns even in short periods and despite turbulent market conditions. Fixed deposits give a fixed amount of return, whereas, the return on mutual funds depends on market conditions. If market conditions are conducive to the specific industry where funds have been invested, you can gain a lot of money.

#4 Investment Security

Fixed deposits are believed to be more secure as they provide return irrespective of market conditions. Mutual Funds returns may suffer if the markets crash. You might see a negative return for a short-term when the market recovers, but staying invested for a longer tenure has always been beneficial to investors. In most cases, mutual fund investors benefitted even if by small amounts.

Mutual Fund Security

#5 Systematic Investment (Synvest-Ment)

Mutual funds are believed to be more liquid than Fixed Deposits. A fixed deposit can be broken by incurring a penalty, this means the interest that you would have gained is decreased. To withdraw your mutual fund investment before the lock-in period you have to pay an exit load, which is small compared to your return. Thus, you should plan such that no urgent requirement arises at least during the lock-in period.

#6 Regulatory authority

Banks handle matters regarding Fixed Deposits, whereas SEBI (Securities and Exchange Board of India) regulates mutual funds. Banks are prone to running into losses and thus can’t offer high-interest rates. They also safeguard the interests of the public. SEBI, on the other hand, just specifies guidelines and lets things play out the way they should. They don’t function with a socialist perspective.

#7 Returns over past 5 years

Over the past 5 years, mutual funds have performed better than Fixed Deposits. All Fixed Deposits have always offered returns even if small. Mutual funds in the short-run may show some downfall, but in the long run, have outperformed other investments.

Conclusion

Both plans have their pros and cons. Investment decisions should be made depending on the requirements of the investor and other relevant circumstances.

Even those of us who are ignoramuses in the field of Economics and Finance has at least heard of mutual funds. The ones among-st us who dream of making income by investing our savings even have thought of investing in such instruments. A majority of us nonetheless have little knowledge of what these actually are.

You can go and invest directly in share markets if you find yourself daring enough or you can do the same through mutual funds. Mutual funds are basically investments in securities of diverse entities that are managed by professionals. Since the economy at present is highly unstable, mutual funds do carry sufficient risk. But, as they are managed by professionals, you can be assured of a great degree of safety.

It is important to remember purchasing a mutual fund “unit(s)” doesn’t mean all your money goes towards a single entity’s shares. The money could be invested in various shares, bonds, debentures or a combination of the above. The profits and losses are also distributed among-st all investors.

In India, all mutual funds are registered with the Securities and Exchange Board of India (SEBI). This is the main regulatory authority for all kinds of securities in India. SEBI tries to protect investors whilst ensuring all companies are issuing instruments and acting within their powers.

Also with mutual funds, you get the benefit of compounding. Compounding is when your returns are re-invested. That means your subsequent returns are calculated on the initial investment as well as the reinvested amount. The longer you guard a mutual fund investment, the more you gain.

Thus, if your investment crosses the period of a year you aren’t required to pay tax on the returns you gain. It is for the above reasons mutual funds, despite the risk they carry, are very attractive investments at present.

Want to know more about Mutual Funds and investing? Join Synvestment, your one-stop solution to all your financial needs. We at Synvestment help you learn about the various investment options available and ensure your money achieves its maximum potential.

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Category: Mutual Funds

How can we compare Fixed Deposits v/s Mutual Funds ?