Advantages of Mutual Funds over Fixed Deposits

In today’s competitive market space, customers have a huge range of financial products available to choose from. Depending upon their financial goals and risk appetite, customers prefer one financial instrument over another for saving and growing their money. While Fixed Deposits are one of the most popular and oldest forms of financial instruments available to customers, Mutual Funds are comparatively newer and highly growth oriented tools that customers can invest in.

Advantages in Mutual Funds

Advantages of mutual funds over fixed deposit schemes

Fixed deposits and mutual funds are two totally different financial tools which customers may avail. Although, there are certain parameters which these two tools can be gauged against. This helps customers to decide which financial instrument will be better for their investment goals. Here are certain advantages of mutual funds over fixed deposits as a financial tool to invest in.

• Inflation adjusted returns are one of the most striking and Advantages of mutual funds. Most mutual fund schemes offer returns that take into account the inflation rate prevalent in the country and hence offer higher rates in the end as compared to those offered by fixed deposit schemes. These schemes offer rates that are fixed and have no bearing with respect to the prevalent rate of inflation in the country.
• Higher risk, higher returns is the principle on which mutual funds operate. This does not mean that all mutual funds are high-risk financial tools. There are funds that invest majorly in the stock market and hence have high returns and high risk associated with them. On the other hand, returns offered by fixed deposits are not, in the least, as aggressive as mutual funds advantages.
• Premature withdrawal is allowed in mutual fund schemes with some amount of exit load. Fixed deposits offer premature withdrawal on payment of certain penalty fee.
• Tax on mutual fund is paid only when withdrawn unlike fixed deposits, where tax is to be paid every time interest is earned on the deposit.
• Mutual funds are managed by fund managers of fund houses. This means that with mutual funds you get the services of an expert fund manager to manage your investment whereas for fixed deposit schemes, you are supposed to manage your deposit on your own.
• Mutual funds offer better tax savings as compared to those offered by fixed deposit schemes. Fixed deposits earn tax exemption only if they are availed for 5 years or more.
• Mutual funds offer higher liquidity of funds as compared to fixed deposits which work on the principle of fixing a particular amount for a specific period of time.

Fixed deposits and mutual funds are two totally different investment avenues. Both work on absolutely different principles of finance and as such any successful portfolio is advised to have an optimum mix of both these tools. Diversification of investments in various financial tools is the best way to lend stability and growth both to a financial portfolio. Mutual funds come in various forms and customers can choose to opt for a specific form based on their financial goals and risk appetite.