The right choice of investment is crucial when it comes to multiplying your wealth and diversifying your investment portfolio. With a plethora of investment options available in the market, choosing the right scheme can be daunting. Mutual Fund and FD (Fixed Deposit) are two such investment instruments that have been confusing investors for a long time. While both are excellent forms of investment, the choice entirely depends on your expectations from a financial venture and the amount of risk you’re willing to take.

fd apply


In a Mutual fund, money is pooled from multiple investors and invested in assets like shares, equity, real estate, and liquid assets. Whereas a Fixed Deposit is a saving scheme that comes with a fixed or flexible term and a rate of interest that’s immune from prevalent market conditions.

Let’s take a look at the pros and cons of FDs and Mutual Funds.

1. Return on Investment

Banks and NBFCs offer an assured rate of return between 5-12% p.a. on Fixed Deposits, depending on the tenure. Once your FD matures, you can either withdraw the money or reinvest it for another tenure. If you’re a senior citizen, some institutions like Bajaj Finserv offer an additional rate of interest of 0.25% on your FD.

The rate of interest of a Mutual Fund is affected by changing market conditions. If the assets you have invested in perform well, you’ll get high returns. On the other hand, if the assets under perform, you might not earn as much as expected. The best way to keep a balance of high and low returns is to invest in a variety of assets, thereby reducing the risk.

2. Liquidity

Depending upon the type of Fixed Deposit you opt for and the tenure you choose, the liquidity of your asset will be determined. Most often, banks and NBFCs will allow premature withdrawal but will also impose a penalty charge. So, instead of liquefying your asset, you can take a loan on your FD when you’re short of funds. The rate of interest charged on such a loan is low because your FD serves as a collateral and will be claimed by the lender if you default.

Mutual Funds, on the other hand, offer higher liquidity provided you have maintained the investment for a minimum holding period. You will be charged an exit load only if you withdraw too quickly—in less than a year. But, some Mutual Funds allow you to withdraw money whenever you want without levying any exit load charges.

3. Tax Implications

The interest earned from a Fixed Deposit is taxable. For example, if the interest earned is higher than Rs. 10,000, TDS is applicable at the rate of 10%. Some financial institutions don’t offer any tax relief for FDs while some others like Bajaj Finserv don’t charge TDS for interest charges of up to Rs. 5,000 p.a. You can opt for a tax Saver Fixed Deposit to avail tax benefits under Section 80C of the Income Tax Act, 1961.

On the other hand, Mutual Funds have been designed as tax-saving instruments. For instance, assets like Equity-Linked Savings Scheme (ELSS) and Rajiv Gandhi Equity Savings Scheme (RGESS) let you claim tax benefits. ELSS has a lock-in period of just 3 years and you can claim a tax deduction of up to Rs.1.5 lakh on the interest earned, according to Section 80C of Income Tax Act. You can invest a maximum of Rs. 50,000 in Rajiv Gandhi Equity Savings Scheme and get to claim a tax deduction of 50% of the investment amount under Section 80CCG of the ITA.

Now that you know about the pros and cons of Mutual Funds and FDs, you can choose an investment vehicle that best serves your financial needs. Aim for high returns and liquidity, and low risks when you’re making the choice.

Calculate FD Maturity Amount Invest in FD Check FD Interest Rate