It is challenging to decide whether to invest your money in Mutual Funds and Fixed Deposits. Both the investment instruments differ in rate of interest, benefits, risks, and other factors.

While banks offer fixed deposits, fund or asset management firms provide customers with the chance to invest in mutual funds. Before deciding which to invest in, you need to consider the numerous differences between mutual funds and fixed deposits.

Differences Between Mutual Funds and Fixed Deposits

To help you better understand what is a better option in present India, some of the key differences between mutual funds and fixed deposits are highlighted below:

Mutual Funds or Fixed Deposits Which is Better?


Fixed deposits primarily offer a predetermined rate of interest on the investment that is fixed for certain tenure. On the contrary, an individual investing in mutual funds potentially earn a higher rate on investments as is it entirely based on stock market performance.


As an individual is already aware of the returns on their fixed deposit investment, it is essentially a zero-risk investment. As the mutual fund fixed deposit interest rate does not vary over a period of time, nor is it dependent on market forces, the risks associated with fixed deposits are fairly low.

On the other hand, mutual funds solely operate on changes in the market, hence the risks associated are much higher. If the market conditions are favorable, an investor could stand to gain higher, but if the conditions are unfavorable, they can also stand to lose a lot of money.


In the case of a fixed deposit, a premature withdrawal is allowed, but the investor may have to pay a penalty. In doing so, they may have to sacrifice a certain amount of their investment that they were expecting to gain at the end of the lock-in period. In the case of mutual funds, premature withdrawals are permitted after a given point of time.


Short-term gains on debt funds that are less than 3 years are taxable according to the tax slab rate. On the other hand, long-term gains on debt funds that are 3 years or more are taxable at the rate of 20% after indexation. As for fixed deposit returns, the gains will be taxed as per the tax bracket the investor falls under.


When an investor invests in mutual funds, they may have to bear the costs associated with the fees and other charges to be paid to the fund manager to take care of the investment portfolio. However, in the case of a fixed deposit, it is an individual investment and hence comes with no costs like fees or other charges to be borne by the investor.

Advantages of Investing in Mutual Funds

Some of the advantages of investing in mutual funds are highlighted below:

  • No minimum investment amount
  • The individual stands to gain higher returns on investment
  • Host of options available to invest
  • Offers a range of methods of investment as well as withdrawal
  • Funds are managed by experts with experience in fund management

Advantages of Investing in Fixed Deposits

  • Fixed and guaranteed return on investment. You can also use various online calculators such as the Bajaj Finance FD calculator, to know your returns even before investing.
  • There are no market risks associated with Fixed Deposits.
  • Every Fixed Deposit is insured hence if the bank defaults, the investor can still earn their returns.
  • Fixed deposits offer flexible tenure and easy liquidity.
  • In times of emergency, one can take a loan against a Fixed Deposit with a predetermined payout period.

In The End…

When it comes to investing one’s money, mutual funds and fixed deposits have long been considered safe investments. Investors typically benefit from good returns from these low-risk forms of investment. But, before investing in Mutual Funds and Fixed Deposits, it is best to compare all the features, benefits, risk aspects, and other factors and finally make a decision considering the market conditions and your financial needs.