Make a Better Choice: Mutual Funds Vs Fixed Deposit

Before going in-depth discussion first lets understand the difference between  these two investment solutions:

Mutual Funds:

involve a high amount of risk and their turnover rate is determined by the current market condition. There may be times when the market is doing really well and you may gain an immense amount of profits, but there are also times when the market does not perform so well and may even dip.

Hence mutual funds come with risk factors.

Fixed Deposit:

you have a constant fixed rate of interest which you know you will get. However, this amount remains fixed and does not increase.

Whereas if the market is performing really well, this may prove to be a disadvantage for fixed deposit investors as you may get higher returns on investing in mutual funds.

Let Compare the Mutual funds against Fixed Deposit:

For example, if you invest a certain amount in a fixed deposit for a certain period of time and at a fixed interest rate, you will enjoy the same benefit throughout the tenure of your investment. When it comes to investing in mutual funds there is no certainty of making any profit or gaining any returns. Mutual funds depend on the condition and performance of the market. So if the market goes up, the mutual fund will perform better and yield higher returns.

Also both the investment allows you to choose from its wide range of products:

Click here to check different types of Mutual Funds in India

Click here to check different types of Fixed Deposit .

If you are already an active investor please do share your thoughts  on your investment experience.


Happy Investing :)

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Different Types of Mutual Funds

Mutual funds have become a preferred choice of investment for ordinary people. The reason for this phenomenon is twofold, it provides for a relatively safe avenue of investment coupled with the tax benefits of the central government. For ordinary people, all mutual funds are one and the same except for their fancy little names. The truth cannot be more different.

Not only are there a wide-range of mutual funds, but also the benefits accrued from each one of them differ significantly.

The most basic difference is the schemes which govern these mutual funds. There are generally two types of schemes-open ended and closed ended. The most fundamental difference between them is that the former do not have any rigid maturity period while the latter do not enjoy the flexibility of an open ended scheme. Hence the key or the USP of an open ended scheme is that it offers discretionary liquidity. It must not be implied that one of these schemes are better than the other. For the close ended schemes, the added benefit is that it enjoys the favor of the finance ministry in the form of tax benefits. Mutual funds falling under the gambit of the closed ended schemes can be traded on the stock exchange. In addition to it, the investors can also sell their units to the mutual funds within a limited liquidity window.

In addition to the above mentioned schemes, there is a new form of mutual funds which is gaining popularity with the investors. It is called interval schemes. The unique feature of this scheme is that it encompasses the benefits of both the open-ended as well as closed-ended schemes. Even the units of this kind of schemes can be traded on the stock market.

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Comprehending Mutual Funds in India

Mutual fund is an institution which pools money from different entities, which share common financial objectives, and invest the accumulated sum into asset classes that are suited to their stated financial objective of the scheme. One important factor which differentiates mutual funds from any other investment option is that the fund under any circumstances cannot deviate from the stated objective. This precisely forms the basis on which an investor invests his/her money in a given scheme.

All mutual funds are managed by a fund manager who is an expert in investment management. The fund manager does his necessary research and using his investment management skills makes sure that the return which he gains out of the fund is a tad more if, the investor would have managed the fund on his own. The incomes earned and the capital appreciation on the investment is trickled down to the investors, sometimes known as unit holders, in the proportion of their units held. This means that whenever an investor subscribes for units of any types of mutual funds, he/she becomes part owner of the fund in exactly the same proportion; as their contribution amount invested in the total amount of the fund.  Mutual fund holders in India are also sometimes called as unit holder or mutual fund shareholder.

Some of the advantages of investing in a mutual fund

·         It provides a well-diversified portfolio of equities which facilitates the investor in his/her quest to maintain a diversified investment portfolio in order to mitigate the risk of market fluctuations.

·         The fund is managed by experts who undertake various research works and have superior investment skills in comparison to an ordinary investor. This results into a better rate of return for the investor.

·         The risk is significantly less when you have a diversified portfolio as against a portfolio which is undiversified.

·         Due to the sheer economies of scale, the fee which the investor has to pay for his/her fund management services is minimal.

·         The liquidity which the mutual funds have is far more than any securities.

Some of the disadvantages of investing in a mutual fund

·         The investor does not have any say when it comes to payment of maintenance fee regardless of the performance of the fund.

·         There is no such option as customized portfolios. The decision to invest in a particular venue is solely at the discretion of the fund manager and the investor has no right to intervene in the decision making.

·         Lack of sufficient knowledge makes it very confusing and often time leads to bad decision while choosing a particular mutual fund out of the plethora of such schemes.

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