There are many investment options
available to people across the country. Amongst the many options, company fixed
deposits, often referred to as FDs, and mutual funds remain the most popular.
There is often debate on which is better. The fact remains that both the
options are good, and the choice between one over the other is directly
dependent on your investment portfolio and risk capacity. However, wealth
managers across the board suggest investing in both.
So, let’s look at how one scores over
the other along with the following three parameters.
Rate of Interest & Income Earned
One of the most defining features of
a company fixed deposit is the pre-decided FD interest rates. So, if you invest an amount of Rs 50,000 for one year at an interest
rate of 7%, then at the time of maturity you will earn Rs 2500.
Mutual Funds, on the other hand, give
you a prediction of what you can earn from the above Rs. 50,000. If the market
is bullish, your income can increase by 15%, and you may earn approximately Rs
5,500. On the other hand, if the market is bearish, your Rs. 50,000 can be
reduced to Rs. 5,000/.
FD interest rate may be lower than
Mutual Funds, but then there is safety which the latter does not give.
Liquidity & A Source of Income
Some people, especially senior
citizens, use the fixed deposit to create a source of income for themselves.
Banks provide the option of letting
depositors choose how they can earn interest. You can choose both cumulative
and non-cumulative. In the cumulative option, the interest earned is added to
your principal amount and thus, year-on-year, the interest earned, thereby,
increases.
Non-cumulative transfers the interest
earned to your bank account, thus, giving you a fixed income. The option is to
take the interest earned in monthly, quarterly, six-monthly or yearly payouts.
Mutual Funds do not have any such
option. You have to invest a pre-decided sum monthly to your SIP fund. But, you
cannot withdraw money at regular intervals.
The advantage of Mutual Funds over
FDs is that you can withdraw the former when you want and suffer losses on
perceived income. With the latter, you either have to pay a penalty for early
withdrawal or take a loan against the FD amount.
Tenure
One of the biggest advantages of
company fixed deposits over Mutual Funds is that you can part excess funds in
an FD for a short duration of seven days also. You can even use a Fixed Deposit
Calculator to know the sum you will earn and take an informed decision. Mutual
Funds are long term investment vehicles and are not recommended for the short
term.
As is obvious from the above
parameters, you can look for the highest fixed interest rates while choosing
your FD deposit. At the same time, you are assured that you are earning an
income without the fear of losing your investment. But, with a Mutual Fund, you
can win or lose the income, and there is nothing you or your financial advisor
can do to control the outcome.
