Mutual Funds Vs. FD: Which is a better to investment for your the hard-earned money?


For many generations, fixed income instruments such as fixed deposits (FDs) have been the favourite mode of investment for many.  Does this satisfy the investors that their money is kept safe?

In this post, we will compare mutual funds with the FD under these four aspects I.e. returns, tax liability, liquidity, and risk factors. By reading the complete article, you will know which is the better option to grow your money.

1. Returns on the investments :

  • Fixed deposits: 

The first thing that is clearly in favour of fixed deposits is the assurance of guaranteed returns on invested money. Different banks provide different returns on investments under different time frames.

It means that if you invest a certain amount of money in FDs for three months only, then the interest rate for the three months is less than the interest rates for the 12 months.

  • Mutual funds 

There is no assurance of guaranteed returns in the case of mutual funds. According to the market returns, the returns on the mutual funds go up and down. Still, there is a better chance of higher returns on the mutual funds than on FDs.

2. Liquidity: 

  • Fixed deposits

In case of the FDs, if you want to redeem the units before the maturity period, you have to pay the penalty. For example, according to the banking rule, if you redeem the units of the FD before the maturity period, you have to pay a penalty of up to 1 percent on the total amount.  

  • Mutual funds 

Mutual funds have high liquidity and their units are possible to redeem at the time with a few clicks of buttons. In this way, the money is deposited into the designated bank account within the 2-3 business days

3. Tax Liability: 

The strength of any financial product is based upon the return rate, but the actual return on investments is known as post-tax returns.

  • Fixed deposits 

  • Mutual Funds 

Compared to the FDs, short-term gains come from mutual funds returns. For example, investment returns for less than 3 years are automatically added to the investor’s annual income and taxed.

4. Risk factor

People are more concerned about the safety of their money, whether they invest in the FDs or Mutual Funds.  

  • Fixed deposits 

There is  proper safety in keeping your money in FDs under the guaranteed safety factor.

  • Mutual funds 

There are no guarantees on the safety of the minimum return amount of mutual funds.


It is concluded that mutual funds are better investment options than FDs.

Please re-check the factuals mentioned here

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