Mutual Funds or Fixed Deposits (FD), Make the Right Choice
Making investments has always been the preferred choice of individuals to multiply their money. There are various ways in which this can be done using any of the two approaches. The investments a person does are classified into either a risky or a non risky approach. Mutual funds are considered to be a risky approach and FDs come with a high degree of safety. Each has its own set of pros and cons, some of which are mentioned below.
Advantages of Mutual Fund Investments
Disadvantages of Mutual Fund Investments
Advantages of Fixed Deposits
Disadvantages of Fixed Deposits
A person looking to invest his money can take a look at both the pros and cons of FDs and mutual funds and his risk taking capacity before making the final decision. FD has always been the safest option to invest money whereas mutual funds in India are also gaining momentum with higher but risky returns. The selection purely depends on the investor.
Advantages of Mutual Fund Investments
- Mutual funds when invested in the right places have high profit margins. There is no fixed margin and the profits earned are distributed amongst the share holders, higher the profits higher will be the returns.
- Mutual funds in India are spread across many different sectors that investors can choose from. The idea is to spread the risk and reduce chances of incurring heavy losses which mostly happens in case of bonds.
- As this investment is not time bound one can opt to liquefy it at any point of time.
Disadvantages of Mutual Fund Investments
- Though the fund investors play safe in this form of investment there are risks involved.
- To manage mutual funds an investor would feel the need to consult an investment advisor, which in turn would mean adding extra cost.
- It is ideal for people looking out for long term investment options and not for short term.
Advantages of Fixed Deposits
- Investing in an FD scheme has 0% risk involvement so there is no chance someone can incur losses.
- The interest rates are fixed and the calculations can be done easily with the help of fixed deposit calculator. One can enter the amount and the rate of interest various providers are giving and do a comparison of the amount that will be received based on the rate of interest and its frequency.
- FD schemes come with guaranteed profits provided the investor locks in his money for the duration agreed upon by both the parties.
Disadvantages of Fixed Deposits
- If the funds need to be withdrawn before the maturity period no interest is paid. In case of emergencies having an FD can give some respite but there would be no extra earnings out of them.
- The interest earned is fixed and cannot be changed at any point of time. If a person puts his funds in FD today for 8% and the rates change after a few months to 9% he will still get the benefits he was promised when he had opted for the scheme.
A person looking to invest his money can take a look at both the pros and cons of FDs and mutual funds and his risk taking capacity before making the final decision. FD has always been the safest option to invest money whereas mutual funds in India are also gaining momentum with higher but risky returns. The selection purely depends on the investor.