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TATA AIA Life Insurance Co. Ltd will send you updates on your policy, new products & services, insurance solutions or related information. Select here to opt-in. T&C apply.

Fixed Deposit vs Mutual Funds – where to Invest

It is essential to invest your money to give it an opportunity to generate returns for you. There are various investment avenues available in the market, like life insurance policies, fixed deposits, and mutual funds. 
 

Fixed deposits (FDs) are the most traditional investment options and have been used by Indian investors for capital preservation. On the other hand, people have started investing in mutual funds in the last few decades. To choose the right investment instrument, you must understand these two instruments and know fixed deposit vs mutual fund India.
 

Therefore, here is a detailed guide to the meaning of FD and mutual funds and fixed deposits vs mutual funds differences.

Understanding Fixed Deposits

A fixed deposit is an investment instrument offered by banks and Non-Banking Financial Companies (NBFCs). Fixed deposits are practically risk-free.  A fixed deposit account holds a fixed sum of money for a predetermined duration. It provides fixed Returns decided by the financial institution at the time of opening the FD account.
 

Once the FD interest rates are locked, they stay unaffected by market fluctuations or changes in the interest rates offered by the institution. Fixed deposits provide better interest rates than bank savings accounts. Moreover,  you can choose a fixed deposit tenure according to your investment goals.

 

Understanding Mutual Funds

A mutual fund is an investment instrument that collects money from multiple Individual and institutional investors to invest collectively in a portfolio of stocks, bonds, and other assets. A professional fund manager manages a mutual fund with the aim of providing better returns than individual stocks.
 

You can find a variety of investment options in mutual funds, like equity funds, debt funds, and hybrid funds, depending on your financial requirements and investment needs.

 

Difference between Mutual Funds and Fixed Deposits

It is necessary to understand the mutual fund vs fixed deposit difference to choose the right investment option for yourself.

Parameter

Fixed Deposits

Mutual Funds

Nature of Investment

It is a debt instrument with a fixed tenure and predetermined rate of return.  The invested amount is also fixed.

This instrument pools money from multiple investors to create a Portfolio that includes several asset classes.

Returns

Guaranteed@ and predefined Returns that do not depend on the market.

The returns are linked to financial markets and the asset classes included in the portfolio. Therefore,  the returns may vary depending on the market situation.

Risk Involved

Low-risk investment option

Medium to high risk as the investment is subject to market volatility. 

Withdrawal

A fixed deposit has a lock-in period. You must pay a penalty to withdraw prematurely from a fixed deposit.

No charges on withdrawal after a stipulated period. An exit load is charged on withdrawals before the stipulated period.

Expenses

No expenses involve starting or maintaining a fixed deposit.

You must pay fund management fees to the fund manager or Asset Management Company handling your mutual fund portfolio.

Taxation#

As per the investor’s Income Tax# slab.

Provide long-term capital gain tax# advantage.

Investment Mode

lump sum investment

Can be a lump sum investment or a  systematic investment plan.

Regulation

Regulated by RBI

Regulated by SEBI

Impact of Inflation

Returns are unaffected by inflation

Returns are inflation-adjusted

How to Invest

You can invest through a bank or an NBFC.

You can invest through an Asset Management Company.

 

Mutual Funds or Fixed Deposits: which is Better?

Whether you should invest in a fixed deposit or mutual fund depends on several factors, like your risk appetite, investment goal, and expected returns. Let us see who should invest in fixed deposits and mutual funds:
 

Who Should Invest in Fixed Deposits?

  • Investors unwilling to take a market risk on their investments.

  • Senior citizens who won a regular source of income after their retirement.

  • Investors with a taxable# income.

  • Homemakers who want to develop a habit of investing their savings.
     

Who Should Invest in Mutual Funds?

  • Investors who want higher returns on their investment and are ready to take some degree of market risk on their money.

  • Investors who want to diversify their investments.

  • Investors who want inflation-beating returns.

Secure your Future with Tata AIA Life Insurance Plans

While fixed deposit schemes and mutual funds are both good investment instruments, you can further diversify your portfolio by adding an insurance plan to your investment basket. A life insurance plan ensures the financial safety of your loved ones, even in your absence.
 

You can choose a Tata AIA insurance Company plan to meet your investment goal, like retirement planning, wealth creation, generating savings, securing your health, etc. Moreover, to save your time and effort, you can buy life insurance plan online with us through a simple and quick digital process.
 

Our customer-centric insurance plans offer several unique features and benefits, like a 4-hour express claim settlement facility, transparent claim processing, a high claim settlement ratio, and a nationwide presence.

Wrapping Up

Fixed deposits and mutual funds are both great investment tools with unique characteristics. While FDs are almost risk-free, mutual funds allow you to benefit from growing and evolving financial markets. Choose an investment instrument that matches your investment needs. You can further diversify your investment portfolio by adding the security of a life insurance plan to it.

Discover Tailored Financial Planning Solutions to Secure your Future

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Tata AIA Life Insurance

A joint venture between Tata Sons Pvt. Ltd. and AIA Group Ltd. (AIA),  Tata AIA Life Insurance  is one of the leading life insurance providers in India. We post everything you need to know about life insurance, tax savings and a variety of lateral topics such as savings and investments in this space. You can access and read a host of different blogs, articles and pages at the Tata AIA Life Insurance Knowledge Center or get in touch with us with any queries or questions!

View all posts by Tata AIA Life Insurance

Frequently Asked Questions

Are mutual funds a good investment option for salaried professionals?

Yes, salaried professionals can invest in mutual funds through a lump-sum investment or through a Systematic Investment Plan. It is advisable to take the services of a reliable and experienced fund manager to increase the scope of returns.

Will I get an interest on my mutual fund investment?

Mutual funds are not deposits. Therefore, you will not get an interest on your mutual fund investment. However, you can get returns on it, depending on the fund’s performance.

Can I withdraw money from my online FD account before maturity?

Most financial institutions allow you to withdraw funds from your FD account before maturity. However, they may charge you a penalty for it.

Disclaimers

  •  Insurance cover is available under the product.

  •  The products are underwritten by Tata AIA Life Insurance Company Ltd.

  • The plans are not a guaranteed issuance plan, and it will be subject to Company’s underwriting and acceptance.

  • For more details on risk factors, terms and conditions please read the sales brochure carefully before concluding a sale.

  • This blog is for information and illustrative purposes only and does not purport to any financial or investment services and do not offer or form part of any offer or recommendation. The information is not and should not be regarded as investment advice or as a recommendation regarding any particular security or course of action.

  • Please know the associated risks and the applicable charges, from your Insurance agent or the Intermediary or policy document issued by the insurance company.

  • Every effort is made to ensure that all information contained in this blog is accurate at the date of publication, however, the Tata AIA Life shall not have any liability for any damages of any kind (including but not limited to errors and omissions) whatsoever relating to this material.

  • Tax: *Income Tax benefits would be available as per the prevailing income tax laws, subject to fulfilment of conditions stipulated therein. Income Tax laws are subject to change from time to time. Tata AIA Life Insurance Company Ltd. does not assume responsibility on tax implications mentioned anywhere in this document. Please consult your own tax consultant to know the tax benefits available to you.

  • Guaranteed/Guarantee: @Guaranteed Returns/Payouts depend on Plan Option, Policy Term, Premium Payment Term and Age at entry