Mutual funds and fixed deposits are very popular investment options among individuals. However, choosing between FDs and MFs can be challenging because both have their own advantages and disadvantages.
Still, according to experts, a simple formula to take a call is based on your risk assessment strategy. If you feel that the investment is for the long term and you can afford to wait even if the market gets volatile during the investment tenure, it is good to go with mutual funds, but if you don’t want to take any risk, then you can opt for fixed deposits.
Pros and Cons of Fixed Deposits and Mutual Funds
Both mutual funds and fixed deposits have their own pros and cons, and choosing one for middle-age investors depends on their individual financial goals, risk appetite, and investment horizon.
Fixed deposits are a low-risk investment option where the investor deposits a sum of money with a bank or financial institution for a fixed tenure and at a fixed interest rate. FDs offer guaranteed returns, but the returns are relatively low compared to other investment options. They are suitable for conservative investors who prefer a fixed income with minimal risks.
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On the other hand, mutual funds are professionally-managed investment funds that pool money from multiple investors to invest in a diversified portfolio of stocks, bonds, or other securities. Mutual funds offer the potential for higher returns, but they come with higher risks than those of FDs.
Commenting on the same, Adhil Shetty, CEO, Bankbazaar.com, says, “Investing in fixed deposits (FDs) offers the benefit of guaranteed returns, and they are considered a low-risk investment option. FDs are suitable for investors who have a low-risk appetite and prefer a fixed income with minimal risk. On the other hand, mutual funds offer the potential for higher returns, but they come with higher risk than FDs. However, without risk, you will have to be satisfied with fixed returns which may not be sufficient to achieve your financial goals.”
“Mutual funds are professionally managed investment funds that pool money from multiple investors to invest in a diversified portfolio of stocks, bonds, or other securities. Mutual funds are suitable for investors who have a moderate to high-risk appetite and a long-term investment horizon. However, mutual funds are subject to market risks, and the returns are not guaranteed. They also involve fees and expenses, which can reduce the returns,” adds Shetty.
MFs are suitable for investors with a long-term investment horizon who can tolerate market volatility and are looking for potentially higher returns. In general, middle-age investors who have a moderate to high-risk appetite and a long-term investment horizon may consider investing in mutual funds.
Mutual funds can offer the potential for higher returns than FDs, and the returns can help in wealth creation over the long term. However, investors should also consider their financial goals, risk tolerance, and investment horizon before making any investment decisions.
It is always advisable to consult a financial advisor before investing in any financial product to get a better understanding of the risks involved and the potential returns.