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Key Differences Between FD vs Mutual Fund

There is no doubt that Fixed Deposits (FDs) are the best option for investors when it comes to saving money when it comes to saving their money. Because it is one of the oldest and most reliable saving instruments, its fixed rate of return is consider the safest. But is it still the most appropriate investment option in the present day and age? Do you still believe that it provides the best returns? Do you also think that other investments, such as mutual funds, can provide higher returns and help you reach a goal more effectively?

Difference between FD vs Mutual Fund

Regarding investing in a mutual fund or a fixed deposit, there is still a question about which is better. Here are a few parameters and the difference between FD vs Mutual Fund that can give you a better idea of whether to invest in a mutual fund or a fixed deposit and then decide what is right for you.

FD vs Mutual Fund 

In the banking industry, Fixed Deposit or FDs, are the most popular instruments to save money for short-term and long-term investments offer by banks. Because the interest rate on FDs is fixed and predetermine by the Government of India, the growth in inflation does not have a major impact on the interest rate on these investments. However, the dividends and interest on the FD are taxable to the investors. 

Still, FD investments can also be deduct from taxable income under Section 80C of the Income Tax Act, which allows deductions for FD investments. On the other hand, mutual funds are investment instruments base on the market and do not offer a fixed return rate. However, over the long run, it has been observe that they have given higher returns than fixed deposits, at least 10-15%. Mutual Funds can be divide into three types – Debt Funds, Equity Funds, and Balance Funds.

Return on Investment

A Fixed Deposit offers predetermine returns which don’t change throughout the lifetime of the investment. In contrast, Mutual Funds offer better returns on long-term investments due to their market-link nature, which makes them a better choice for long-term investments. A Mutual Fund’s returns are better if the investment is made for a longer period.

Rate of Return

FD interest rates are usually fixed and do not vary depending on the type and tenure of the FD. In this regard, there is no expectation that they will give a higher interest rate. For Mutual Funds, however, return rates are determine by various factors such as market volatility and fund type. Therefore, you can expect a higher return when the market goes high and vice versa when it goes low.

Risk Factors

Fixed deposits are consider the safest investments because the returns are predetermine. In contrast, mutual funds are consider the riskiest because they are investments made in the financial market. For example, an equity mutual fund is one in which most of the amount invest is in the stock market and therefore carries a higher level of risk than a mutual debt fund.

Inflation’s impact

The interest rate on Fixed Deposits remains unaffect by inflation since the amount of interest on them is predetermine. On the other hand, the returns of mutual funds have the benefit of being inflation-adjust, enabling them to generate better returns over time.


A fixed deposit is not a liquid investment because the invest amount can remain lock for a certain period. Therefore, the investor will be penalize if the FD is withdrawn before its maturity date. Conversely, mutual funds have a much higher level of liquidity as they can be sold within a short period without much depreciation in their value.


The interest earn from a Fixed Deposit is taxable, base on the individual’s tax slab, as oppose to the taxation on a Mutual Fund, depending on the time the mutual fund has been held. As a result, long-term capital gains, as well as short-term capital gains, are tax differently base on their duration.

FD vs mutual fund: Which is Better?

If you are considering investing in a bank FD or a mutual fund, you will to consider your risk appetite and the amount you want to invest. Initially, investments in mutual funds are usually made with a lump sum amount, while investments in FDs can be made with as little as Rs. 500 per month. However, if you are looking to invest in the long run, it might make sense to invest in Mutual Funds since they offer better returns over the long run. Plus, they can be plan by your goals, so it makes sense to invest in them.


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