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Mutual Fund Vs Fixed Deposit

By Author: nishant dhar
Total Articles: 11
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What is Fixed Deposit (FD)?

Fixed deposit involves generating interest by keeping a sum of money fixed for a certain period of time. It is a financial instrument provided by various banks or NBFCs. Also, FDs provides investors a higher rate of interest than any of a regular savings account, until the given maturity date.

There are various benefits of investing in FDs:

As it is government backed thus, comes with zero risk

It provides guaranteed rate of return

Entitled to tax deduction under Sec. 80C of Income Tax Act 1961 upto Rs. 150000 over 5 years in tenure

Tax exempt under Sec. 80TTB of Income Tax Act 1961 on interest income earned by senior citizen upto Rs. 50000

What is Mutual Fund?

Mutual Fund is a professionally managed investment fund which pools money from many investors to purchase securities like stock, bonds, money market instrument, etc. to fulfill a common goal of wealth creation.

There are various benefits of investing in mutual fund:

Through portfolio diversification risk can be mitigated
Just with Rs. 500/- you can start investing
It offers high returns, especially equity based mutual fund
Various modes available for your investment (STP, SIP, Lump sum)

 Mutual Fund Vs Fixed Deposit

Basis
Mutual Fund
Fixed Deposits


Risk
It varies from funds to funds; it is majorly influenced by the market.
No risk, as guaranteed returns at a fixed interest rate.


Returns
Returns are linked to the market and are fully dependent on performance of stock market.
Offers fixed and guaranteed returns over a specific time period.


Expenses
Carry certain charges which get deducted as a part of managing funds.
No expenses over the course of initiation or the tenure of deposits


Withdrawal
After a given period, no charges are taken on withdrawal. Whereas before a period, an amount in the form of exit load will be charged.
Who wishes to withdrawal have to break FD and pay a penalty.


Taxation
All MFs are subject to capital gain tax (short term and long term):

· STCG: 15%* flat rate

· LTCG: 10%* of earning above 1 lakh

*equity

 
TDS is applicable as per the tax slab under which the investor falls.

 

Hence, both are considered to be very safe when it comes to investing money. They are generally less risky which provide investors a good return over a substantial period of time.

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