In love with Mutual Funds? 5 Reasons Why You Should Switch to Fixed Deposits
To start with, it is important to understand the difference between mutual funds and fixed deposits. Mutual funds involve a pool of investments made by various investors in different holdings. These investments grow over time and generate dividend. Fixed deposits however involve a sum of money or savings that are invested in a bank or financial institution over a specified tenor and generate interest over time. The rate of interest for fixed deposits can be more than around 8%, and varies from institution to institution. Both FDs and mutual funds have their own characteristics and may be ideal for investors depending on how well they match their requirements.
Highlights of Mutual Funds
- They provide investors with exposure to equity portfolios and markets, which can help in future investments and understanding of the market
- They give your investment good growth.
- They are however relatively risky and very dependent on market fluctuations.
- The short-term gains from mutual funds are taxable.
- They provide regular dividend payments.
- They are considered a fairly liquid form of investment.
Highlights of Fixed Deposits
- Fixed deposits provide attractive interest rates.
- They are highly liquid and can be easily broken in cases where emergency cash is needed.
- They allow your savings grow considerably over a period of time.
- They are an extremely safe form of investment and unaffected by market fluctuations.
- FDs are ideal for investors who are seeking retirement and want to invest their savings since they allow for interest pay-outs at chosen periods.
- Long-term fixed deposits offer more attractive returns.
Both mutual funds and fixed deposits have their own unique characteristics. However there are a few FD investment benefits, which may lead to consider switching to fixed deposits.
- Better safety and reliability: Once you have invested a sum of money in fixed deposits, you are sure to receive steady interest on that sum as per your selected tenor. FDs are a low-risk investment and unaffected by market fluctuations. Whereas mutual funds introduce you to a whole new equity market, in comparison to FDs they are risky and prone to market risks.
- Liquidity: Fixed deposits offer incredible liquidity. You can break a fixed deposit at any time and use the cash in cases of emergency.
- Attractive FD interest rates: Short-term FDs offer excellent interest rates that can provide you a good source of income. You can get this interest on selected times if you choose a non-cumulative FD, which gives you income that you can use for paying your bills, fulfilling your daily household responsibilities and more. Long term FDs offer immense growth to your overall invested sum, and give you a matured principal, especially when you opt for a cumulative FD.
- Source of finance for retirement: Those who seek retirement usually want a safe source of finance that will provide them with money throughout their life after retirement. FDs are such a source. Once a sum of savings is invested you can easily use the interest to uphold your standard of living even after retiring.
- Fund for various purposes: Apart from savings, you can also consider investing in FDs for purchasing assets or planning a trip abroad. Alternatively, you can invest in multiple FDs and make it a form of income that can come to you at different times, i.e., monthly, quarterly or annually.
Though fixed deposits offer many advantages, the final decision will depend on viewing your requirements and seeing whether FDs are the right investment to help you fulfil them.
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