Differece between Mutual funds and Fixed deposits - Banking info

What is a fixed deposit?

You invest money in a fixed deposit with a bank. The money you invest called the principal is very safe. (You will not lose this money). You also earn interest on your money. The interest paid to you is compounded quarterly.

Fixed Deposits are bank deposits for a fixed or specified period chosen by investor or depositor at a fixed rate of interest. You can deposit money for as short a period as 7 days and up to 10 years. When you open a fixed deposit with the bank then you are lending money to the bank and it pays you interest. As interest rate and time period are fixed this investment product is called as Fixed Deposit.  Deposit up to Rs 1 lakh in any bank is protected under the Deposit Insurance & Credit Guarantee Scheme of India

Each bank or financial institution that is offering fixed deposits fixes its own deposit rates. Interest rates are subject to change from time to time. The intrest of FD varies based on the time period, the amount which is deposited. Most of the banks offer higher interest rate(0.5% more) to Senior Citizens.

What is a mutual fund?

A mutual fund in India collects and pools your and other investor’s money. This money is invested in stocks if you choose an equity mutual fund. It is invested in government bonds, corporate bonds, and money market instruments if you choose debt funds. Your money is invested in a mix of equity and debt if you choose hybrid funds.
Your total investment in the mutual fund, either in stocks, bonds or a mix of both, is divided into units. You are given units of the mutual fund, depending on the cash you invest. The NAV (Net Asset Value), gives you the value of the mutual fund. Your mutual fund is managed by a fund manager. The fund manager decides which stocks, bonds or assets, your money must be invested in, depending on the type of mutual fund you choose.

How to invest in mutual funds? 

You can either invest directly with a mutual fund or hire the services of a mutual fund advisor. If you are investing directly, you will invest in the direct plan of a mutual fund scheme. If you are investing through an advisor or intermediary, you will invest in the regular plan of the scheme.

Parameters	Mutual Funds	Fixed Deposits
Rate of Returns	No Assured Returns	Fixed Returns
Inflation-Adjusted Returns	Potential for High Inflation-adjusted Returns	Usually Low Inflation-adjusted Returns
Risk	Medium to High-Risk	Low Risk
Liquidity	High liquidity	Medium to Low Liquidity
Premature Withdrawal	Allowed with Exit Load	Allowed with Penalty
Cost of Investment	Management Cost	No Cost
Tax Status#	Favourable Tax Status	As Per Tax Slab

Mutual Funds vs. Fixed Deposits

	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%