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Mutual Fund vs. Fixed Deposit: Which is a better investment?

Mutual Fund vs. Fixed Deposit Which is a better investment

Mutual Fund vs. Fixed Deposit: Which is a better investment?

Nowadays, everyone is looking for various options to earn more money other than regular income. Investment is a wise option to earn a great return with just a minimum capital amount. But directly investing in the stock market is not everyone's cup of tea. In such a situation, people usually prefer two investment options: Fixed Deposit and Mutual Funds.

Fixed Deposits are one of the oldest investment options that attract everyone’s attention as it is trustworthy. At the same time, individual investors have only recently become interested in mutual funds - within the last few years.  

Let us compare fixed deposits and mutual funds so that investors may make an informed decision about whether to invest.

Mutual Funds

Mutual funds are a great investment option for those who want to diversify their portfolio. They offer the opportunity to invest in various securities, including stocks, bonds, and mutual funds.

Benefits of Investing in Mutual Funds

Here are some of the benefits of investing in mutual funds:

  1. Accessible to Use - Mutual funds are usually easy to open and manage. You can usually invest in them through your bank or online brokerage account.
  2. Affordable - Mutual funds are generally affordable. You can usually find funds offering reasonable rates of return without costing much money.
  3. Flexible - Mutual funds are flexible regarding the types of investments they can hold. This means you can find funds tailored to your specific financial needs.
  4. Diversified - Mutual funds are typically diversified, which means that they hold a variety of different types of investments. This helps to protect you from the risks associated with individual investments.
  5. Stable - Mutual funds are usually stable. This means that they are unlikely to experience large swings in their value. This can help to minimize the risk associated with your investment.

Fixed Deposit

A fixed deposit is an investment that allows you to lock in a rate of interest for a set time. Banks and other financial institutions typically offer fixed deposits. The main benefit of fixed deposits is that they offer a low-risk way to invest your money. 

Benefits of Investing in Fixed Deposit

Fixed deposits offer several benefits to investors, such as: 

  1. Fixed Returns – Unlike other investments, fixed deposits offer consistent returns, regardless of the market conditions. This means you can count on receiving a fixed return on your investment each year.
  2. Security – Fixed deposits are a form of security, meaning you can rest assured that your money will be there when you need it.
  3. Low Maintenance – Unlike other investments, fixed deposits don’t require you to do any maintenance work on them. This means you can easily access your money without worrying about complications.
  4. Convenience – Fixed deposits are convenient because they are easy to access and use. You can withdraw your money anytime without any hassles.

There are some fixed deposit products available, including: 

  • One-year fixed deposits 
  • Two-year fixed deposits 
  • Three-year fixed deposits 
  • Five-year fixed deposits 
  • Ten-year fixed deposits 

Mutual Funds Vs. Fixed Deposit


Mutual Funds

Fixed Deposit


Medium to High-risk Instrument

Low-risk instrument

Investment Option

Can invest through Systematic Investment Plan (SIP)

Investors can opt for lumpsum investment


Rate of Return

9-12% (approx)

6-7% (approx)




Investment Expenditure

Nominal charges apply

No charges apply to management

Early Withdrawal

Can withdraw investments free of cost after a while

FDs have a lock-in period, so a penalty applied on premature withdrawal


So here we are with all the details one needs to know before investing. Fixed deposits are a more conservative investment choice that offers stability and predictability.

Whereas, If you need your money quickly, a fixed deposit may not be your best option.

Unlike fixed deposits, mutual funds are not guaranteed. However, mutual funds have many advantages over fixed deposits. Mutual funds are more volatile than fixed deposits so they may offer a higher return over time. They also offer the potential for greater returns if the stock market goes up. But they have higher fees than fixed deposits.


So, choosing the one which is the better investment option depends on your financial goals and risk appetite.

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