Thursday, 9 October 2014

Why is it better to Invest in FDs than Mutual Funds?

From time immemorial, there have been some momentous questions that have invaded the minds of the rational, clear thinker- the chicken or the egg, democracy or dictatorship, the Beatles or Metallica? For the 21st century investor in you, one of the paramount questions is this- Where must I invest, in fixed deposits or mutual funds?

Both FD and mutual funds make logical arguments for their selection. Mutual funds are the new kids on the block, prospective high returns, seemingly progressive and definitely a better tax saving option as compared to FD. Fixed deposit on the other hand is considered a safer option, comes with a better guarantee in terms of the ready availability of funds and has that ‘traditional’ and ‘long-term’ vibe working for it. We are presenting below, a clear selection of reasons that put FD a notch above mutual funds as your ideal choice of investment. Of course, the final choice is always yours to make…

Think Long Term, or a year or two…
The lure of mutual funds lie in its short term success- your investment, a progressive market, good returns. However, fixed deposit ensures a reliable and steady FD interest rate that remains constant over a short term or long term duration. While this ensures security for your investment, it also sees to it that the chances of you losing money on your FD investment is a very tiny, miniscule percentage, against the constant unreliability of mutual funds.

No fees on investing…
Unlike mutual funds that require a minimum surcharge for the management of investment and distribution of funds, charged irrespective of actual returns gained, a fixed deposit doesn’t require any additional fees to get going. The FD is in place to only earn positive paybacks for the investor without demanding any additional monetary inputs to begin with.

More liquidity equates to ready cash…
True, most FD portfolios are conceived with an intent to invest money for a long duration, however, many banks allow you to withdraw your money prematurely, with a very small penalty (usually 1%). This ensures that you always have a source of ready, liquid cash that can be accessed immediately if situations thus demanded. This shouldn’t play havoc with the FD interest rate too as you will receive an interest rate in line with the duration your money was part of the FD portfolio. On the flipside, mutual funds fine a 1% exit load on prematurely terminated portfolios, while paying out interest on the prevalent Net Asset Value (NAV) that is squarely dependent on the ups and downs of the financial market.

Consistent return on FD investment
Investing in a fixed deposits come with an assurance that the FD interest rate that was promised to you at the time of the purchase of the fixed deposit will remain a constant factor through the duration of the policy. Such a promise isn’t a possibility with mutual funds. In the latter, the market decides the fate of your investment- it could be an impressive return in line with the market’s upswing, or you could lose money as the market hits the ground.


Bottom line- FD gives you safety, and an assurance of a fixed income on your investment. Fixed deposit is the choice of a safety oriented, smart and optimistic investor, who isn’t willing to cast away his/her hard earned money on the whims of an often volatilemarket

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