Thursday, October 3, 2019

What is better invest in a Company FD or Mutual Funds?

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. 


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.

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