Differences between Mutual Fund SIP and Fixed Deposits
With a growing change being seen in the financial market, potential investors are confused as to where they should invest their money in. An investor who is new to the financial market can easily be drawn into making a huge financial mistake that can cost him/her a lot more than just money. With the financial market nowadays providing the potential investor various options where they can look to invest, it is quite natural for investors to get confused. Hence, it is not at all surprising to see that the potential investor getting confused between mutual fund SIP and fixed deposits.
So, what is a Mutual Fund actually?
Mutual funds are an investment vehicle which is usually run by an asset management company where investors can invest their money which is cumulatively put in securities, bonds, stocks etc. Mutual funds are registered with Securities and Exchange Board of India. The ones who are looking to invest a certain amount but are unsure as to where they should invest can look at mutual funds. The potential investor can also avail the guidance of professionals to make sure that the money invested bears fruits.
What are mutual fund SIPs?
When looking to invest in mutual funds, it always beneficial to start out by looking to invest through Systematic Investment Planning (SIP). This is because it enables the investor to start out with a minimum amount for a specific time period rather than investing a lump sum amount as is the case in fixed deposits. There are many kinds of mutual funds that exists in the financial market and one can look to invest in them through SIPs depending on the benefits that the investors are looking for.
What are fixed deposits?
Fixed Deposits (FDs) are the safest investment option available in the country as it is completely risk-free as well as guarantees safety of the money invested in it. It is the most sought after by the investors as there many benefits attached with FDs. Starting from providing a higher rate of interest as compared to regular savings account, availing loan as well as credit cards based on the FDs helps in fast tracking the process of selecting to invest in time deposits.
Though investing in FDs as well as in mutual funds through SIPs provide benefits to the investors depending on the goals they are looking to fulfil, there are certain differences among the two. Here, we take a look at the differences:
Amount Invested: The first difference that stands out among the two is the amount that the potential investor can look to invest. Unlike in FDs, one does not need to a huge lump sum amount to start investing in mutual funds through SIPs. One can start investing from as low as Rs. 500 which is quite beneficial for the one looking to invest.
Rate of Interest: The rate of interest offered on FDs is constant for the entire period and is pre-specified which is not the case in mutual funds. The interest rates offered in mutual funds tend to vary based on the market movement.
Risk involved: As stated that the rate of returns are constant for FDs, those who invest in FDs need not worry of their investments as they are assured that the amount deposited can be withdrawn without any loss. However, that is not relevant in the case of mutual funds. This is because the rates of interest offered in mutual funds tend to fluctuate depending on market conditions. In short, risks associated with investing in mutual funds even through SIPs is more than investing in FDs.
Value of money: When one invests his/her money, the prime motive behind it is to get good returns which can be put to work as and when needed. However, that is not always the case in today’s world, all thanks to inflation. So, it is imperative to take into account the inflation rate while considering to invest in FDs or mutual funds. It is worth mentioning that though the risks are higher when looking to invest in mutual funds, the inflation induced returns offered by mutual funds are better as compared to FDs.
Withdrawal: Another difference is that one needs to pay a penalty if the amount deposited in the FD is withdrawn before the end of the tenure, for which it was initially deposited. However, one does not need to pay any penalty if the money is withdrawn after the minimum holding period.
Cost of Investment: There is no cost of investment involved with regards to time deposits, which enables the investors to claim the entire rate of return. However, that is not possible in mutual funds as all of them involves a cost that varies according to the mutual funds one invests in.
Rupee cost averaging: When it comes to rupee cost averaging, mutual fund SIPs outperform FDs as unlike mutual funds, FDs are not laced with this benefit. Courtesy this benefit, SIPs eradicates the need for timing the market. As the amount invested in the mutual funds is already fixed is deposited timely, the shares bought adjusts by itself depending on the market condition that prevails.
Compounding power: This is another front where mutual fund SIPs score over term deposits. Though it holds true only when the investment are made for the long term, the money invested in mutual fund SIPs tend to grow aggressively. So, if one is looking for good returns from mutual funds, it is better to invest money for a long tenure as there is a good chance of great returns thanks to the power of compounding.
Hence, as seen in the differences there are certain fronts where both Mutual funds or Fixed Deposits score over each other.
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Differences between Mutual Fund SIP and Fixed Deposits
I am doing Fixed Deposit with ICICI BANK and its been around 5years. They haven't been paying good interest and its more or less same like other banks as I used to hold my salary account with ICICI, I have decided to be with one bank. There is no locking period and its flexible. They do give good support and the app is user friendly. Even deposit account can be opened through i-mobile or net banking itself.
I had a Fixed Deposit in State Bank of India, I have completed the tenure before 3months ago. I have no issues with the customer service. They are given me 7% interest rate for 2years. There is no profit and processing fee. I got an online access, where I can check the interest rate anytime on the YONO app or else SBI online.
I have invested some money through FD. My salary account is in SBI so i have a zero ATM charges and the limit is not actually set by SBI. They do have short term FDs which is pretty good. I have invested the money of Rs. 60000 and the interest rate is 10.01% for the tenure period of 16 months. There is no lockin period. There is no hassle to getting the money back.
I have invested the money in Dena bank through Fixed deposit and the growth is not that much good. They are not taking any hidden charges. Only because of the Government undertaken bank, i have selected them. They are providing a interest rate of 6% per annum. I have invested the money of Rs. 2 lakhs. There is a lockin period of 1 year.
I have opt for fixed deposit for the tax saving purpose because I have chosen five years tenure with AXIS Bank, still its going on. Only once I Invested my money it has the locking period of five years. I have option to check my transactions through mobile app. But I have concern about the interest rate is very lesser for this FD.
I had fixed deposit with SBI then I withdrawn the amount, I done Rs. 3 lakhs of investment on my daughter name then I taken the liquidity to purchase the land, at the time I struggled a lot to take that money because the process was difficult to withdrawn the money after seven months of tenure.
I had a Fixed Deposit with Union Bank of India and its closed 18 to 19 months due to personal reasons. I am doing investment but my experience is not good with FD account. In my home town, there is no other banks so just decided to go with this bank. The returns are good.
I have one FD with HDFC, I deposited Rs. 1 lakh, I was opt for 45 days of tenure. Finally I got 6.25% of interest for 45 days. It won't cover the tax, if we need tax benefits we should go for five years term. I can track the details through netbanking, on the maturity date the amount credits automatically in the account. Even the notification can customized.
HSBC staff wrongly pre closed my fixed deposit .. and calculated the interest rates wrongly and when asked them for clarification never got back .. even after following up with them repeatedly for more than 3 months.. would highly recommend not using their services.
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A V kumar
Reviewed on Aug 24, 2019
I do have a Fixed deposit account with SBI and it was carried out by Mom and even I have account for my daughter. Its still running and they have Google application separately to access online. The returns are good. I am doing monthly investment and it was opened quite a long may be 4 years.
I just opened a Fixed Deposit with ICICI BANK and have not done any survey on this. I am account holder with them so it was easy to do FD account even they are providing 7% interest rate. The process is very user friendly and never faced any hassle. I could access this account via online.
In post office rate of interest is higher for the fixed deposit when compared to the bank, I invested Rs. 5000 on monthly basis its comes in a year Rs. 60,000 after 5 years I got Rs. 3.75,000 I got Rs. 75,000 extra. The service is not comfortable if we have any relative who working there it would supportive or else difficult.
I have FD with SBI, I have opt for one year term there is no such limitation for depositing the money. The interest rate is good for the FD, the online banking is convenient to take liquidity. They resolve the queries on time. Its most safe and secured.
I have selected state bnak of indis fixed deposit amount 1 lakhs , Tenure 5 years and Rate of interest 8 percentage after renewal fixed deposit 6 percentage is very less .while document directly bank . Customer service is not good and responsive.
I activated FD account with Kotak, I have been maintaining this account since when I opened saving account, I converted Rs. 5000 for one year. They are providing interest around 7.6% per annum, the online netbanking and mobile app is very convenient for deposit to FD.
I have invested my FD with ICICI BANK and also have a 3in1 account with them. The interest rate is pretty good. Recently started before 6months, I can do premature withdrawal and also have selected a locking period of 3 years. The customer service is good and overall am satisfied with this bank.
My Post office branch is located in own campus hence there is no queue. I opened the fixed deposit, I made one time investment for five years its has tax exemption. They are providing 7% of interest for per annum. I believe it has online access as well.
Chosen my fixed deposit from State bank of India. I have invested the money of Rs. 57000 and SBI is a most popular bank all over the India and offering all the facilities compared to bank. Since i have a salary account with them, its easy to transfer the money. They are providing the interest rate of 6.5%.
Union of India fixed deposit is same as other investment. Being an existing customer I have opt for one year of fd, the online banking feature is good to open and closing the account, they was no charges for the liquidity of fund before the maturity.
Chosen my fixed deposit from state bank of India because the given rate of interest is high. They are not deducting any service charges. I have invested the money of Rs. 1 lakhs and there is no lockin period and i have chosen the plan for 1 year and they are giving a interest rate of 6.75%.