Here’s a fact! Investing is key to building wealth. From mutual fund (MF) schemes to fixed deposits (FDs), each one allows you to grow your savings but comes with its own set of pros and cons.

In this article, we look at mutual funds vs fixed deposits and which should you invest in.

How do MFs work?

MF schemes pool capital from multiple investors. This corpus is invested in various financial securities, including bonds, stocks, debt securities, money market instruments, and other assets – depending on your MF’s mandate.

This investment vehicle is well suited for you if you don’t have the time to regularly oversee your investments. Here, a qualified fund manager takes care of your investment decisions, allocates the assets under management (AUM), and decides the entry/exit time.

Benefits of investing in MF schemes

A significant advantage of investing in MF schemes is professional management. Since your fund manager picks the best securities for making investments, you get to build a portfolio packed with high-growth stocks, bonds, government securities, etc.

Besides that, you can start your investment through a systematic investment plan (SIP) with small initial investments as low as Rs. 100. You also enjoy liquidity with mutual funds as you can conveniently exit a scheme and redeem your unit holdings.

With MF schemes, you can easily park funds in a broad spectrum of asset classes. Whether you are risk-averse or an aggressive investor, you’ll find a product suited to your time horizon, investment objective, risk profile, income, etc.

Additional Read: Mutual funds vs Stocks: Which is Better?

How do FDs work?

You can lock away a lump sum amount in a fixed deposit for a predetermined tenure. Here, the amount you deposit earns a fixed interest. Besides, since the interest is fixed, you know exactly how much your money will grow within the period and enjoy the highest assurance of earning decent, consistent returns.

#1 Types of FDs

  • Cumulative FD
  • Non-cumulative FD

When your savings earn interest in cumulative deposits, the interest income is added to the principal sum deposited and is reinvested. This means you enjoy accrual interest growth. Now when your FD matures, you collect your invested principal amount and the earned interest.

Whereas, when you invest in non-cumulative deposits, the earned interest is disbursed at periodic intervals- quarterly, annually, or monthly.

#2 Benefits of investing in an FD

If you are like most risk-averse investors, you want to collect high returns on your investments without the potential risk of losing your hard-earned money to market fluctuations. An FD provides you just that! As one of the safest investment avenues, you can easily park excess funds and multiply your savings steadily with fixed deposits.

But that’s not it! You’ll accrue assured returns on your investment regardless of how the market behaves.

Additional Read: Mutual Fund Fact Sheet: Key Information It Holds

The bottom line

If you are wondering which is better, mutual fund or fixed deposit, there is no correct answer. When it comes to investing, always choose an investment vehicle depending on your financial fitness, goals, and risk appetite.

With Tata Capital’s Moneyfy app, multiply your savings with FDs or MF schemes. Select an investment avenue matching your objectives and start reaping benefits today!

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