A fixed deposit is a financial instrument that allows you to lock in your spare money for a period of time and offers a fixed return for the duration of the deposit. A monthly income scheme or MIS is a financial deposit that requires the investor to first pool the money with a lender, and then earn a return, which is shared every month.

Both investments types have a few advantages and disadvantages. Depending on your financial portfolio, you are free to choose the ideal option based on a few important factors.

Here is what you need to know to choose the best plan for you:

  1. Surety of earnings:

An FD offers a fixed rate of return, which is predetermined before investing in the deposit. You can use an FD calculator to gauge the correct amount due on your FD’s maturity. You are therefore clear on the maturity value of the fixed deposit before investing. Most monthly income schemes are also invested into equity and therefore no certainty on returns can be provided. Thus, you cannot know what your gains will be at the time of investing.

  1. Risk calculation:

A fixed deposit offers the lowest risk of any investment option whereas a MIS almost always carries some risk as a portion of the investment is in equities. On the plus side, you may get better than expected returns based on how the equities perform. As an investor, you need to know that return is inversely proportionate to the risk taken. In the case of a FD, which offers a fixed return, the risk is low—almost non-existent. However, in a monthly income scheme, the risk is higher due to equity investment.

  1. Cash earnings:

The earnings from a fixed deposit will remain constant and are predetermined. The cash flow earnings from a MIS can vary over time as the earnings vary with market fluctuations. So if you are looking to get surety in terms of interest, an FD is right for you; if you are open to ups and downs in the money you make, choose MIS.

  1. Payouts:

While a fixed deposit locks your money for a set period of time, you are free to withdraw the principal from the fixed deposit at any time with a penalty charge. At the time of withdrawal, you will also receive the interest earned up to the date of withdrawal of FD. In an MIS you get a monthly return and most MIS come with a fixed lock-in period with a penalty for withdrawals before maturity.

Ideally, a monthly income scheme is best for an investor who has an appetite for high risk, as returns are not assured, and when the investor is sure they don’t need the invested funds for the tenor. When investment needs dictate that funds may be required at short notice, the MIS investor will take a hit at the time of the payout. On the contrary, a fixed deposit investment is safe, offers a slightly lower return in some cases, but is backed as being the most secure investment. Further, you are free to withdraw the money when required and still earn a return up to the time of withdrawal, albeit by paying a penalty.

For the careful investor, a fixed deposit will continue to be the best investment option considering its safety and easy liquidity. When you are shopping for a fixed deposit, consider Bajaj Finance, a reputed lender who offers an easy online application process with minimal documentation, yet offers high-interest rates—especially if you are a senior citizen, an existing loan customer, a Bajaj group employee, or in case you renew your FD.


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