Why Mutual Funds better than Fixed Deposits?

April 08, 2017 InstaEMI 0 Comments

A fixed Deposit (FD) is a financial instrument provided by banks which provides investors with a higher rate of interest than a regular savings account, until the given maturity date.

A Mutual Fund is an investment vehicle made up of a pool of funds collected from many investors for the purpose of investing in securities such as stocks, bonds, money market instruments and similar assets. 

               Fixed Deposits Vs Mutual Funds

Mutual Funds	Fixed Deposits
Return earned varies with the market conditions.	They earn pre-specified rates and do not change for entire tenure.
In case of redemption within a year, they would be charged exit load maximum of 1%.	In case of premature withdrawals, they have to pay penalty and miss on actual returns.
High inflation-adjusted returns	Low inflation-adjusted returns.
High liquid.	Low liquid till the tenure of deposit ends.
Tax benefit under 80C if invested in ELSS mutual funds.	Tax benefit under 80C for investment in 5 year tax saving FDs.
LTCG Equity MF – Nil Debt MF – 20% indexation. STCG Equity MF – 15% Debt MF – Tax Slab	Tax depends on your current slab rate, irrespective of the tenure of Fixed Deposit.
Debt Mutual funds have more risk. Equity Mutual funds have higher than Debt MF.	FDs have minimal risk.
Mutual Funds have the option of monthly investments known as SIP.	In FD it is only has one time investment option.

            Comparing mutual fund returns with fixed deposit returns

	Fixed Deposits	Debt Mutual Fund	Equity Mutual Fund
Investment Amount	100,000	100,000	100,000
Return (% p.a.)	9.0%	9.0%	9.0%
Holding Period	1 Year	1 Year	1 Year
Fund Value	109,000	109,000	109,000
Inflation	7.5%	7.5%	7.5%
Indexed Investment Amount	-	107,500	-
Taxable Income	9,000	1,500	-
Tax Paid (as applicable)	2,700	300	-
Post Tax Returns	6,300	8,700	9,000
Post Tax Returns (%)	6.3%	8.7%	9.0%

(Source: PersonalFN Research)
(The rate of return and rate of inflation is an assumption, for illustration purpose only)

As you can see the post tax returns for Equity Mutual Funds & Debt Mutual Funds is higher when compared to Fixed Deposits, it is profitable to invest in MUTUAL FUNDS at  WWW.InstaEMI.com