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 have invested some money as a Fixed deposit in HDFC Bank and the interest rate is not that much great because they are giving interest as compared to others. I have invested the money of Rs. 3L and there is a locking period of 5 years. Its 7% interest rate. If they are increasing the interest rate, it would be fine. Since I do all my transactions with this bank, I have selected same for my FD as well.
I have chosen my fixed deposit scheme from State bank of India because I'm maintaining my salary account with them and they provided rate of interest is fine for me. I have invested the money of Rs. 2.75 lakhs. There is a locking period of 45 days. They are giving interest rate of 4.5%. Overall, I'm satisfied with their services.
I have been investing the money of Rs. 3 lakhs for the fixed deposit. I have selected Kotak mahindra bank for the FD because their net banking facility is very different when i compared to other. I can access everything regarding the account hence its easy to handle the transactions. I'm not sure about the interest rates. 7 months before, i have invested the money.
Its because of the competitive interest rates, i have selected the Fixed deposit in Kotak Mahindra bank. I have invested the fixed deposit 1.5 years ago and there is a lockin period of 5 years. They have invested the amount of Rs. 7.5 % and the employees are helpful in the branch.
I have a Fixed deposit in Axis bank. I have invested the money of Rs. 10000 for two FDs. There is a lockin duration of 1 year. They are giving a interest rate of 7%. Through net banking, i have activated this Fixed deposit. There is no tax benefits available. Axis bank service has been good. Overall, I'm happy about their services.
Since last 15 years, i have a account with Oriental bank of commerce thats the reason i have invested the money in fixed deposit with the same bank. I have invested the amount of Rs. 11 lakhs. They are giving the interest rate of 6.5%. There is no locking period but i have chosen the duration of 1.5 years. There is no additional charges deducted for this fixed deposit.
Interest rate is very low in Indian post office Fixed deposit scheme because they are providing only 8.5%. I have chosen this office because of the child benefits. I have invested the money of Rs. 1.5 years. Its 3 years lock in period. Overall, I'm satisfied with the service provided by post office employees.
I have invested the money in SBI for a fixed deposit and based on my wife recommendation i have chosen it. They are providing the interest rate of 7.25%. They have option to select the lock in period in that i have chosen 5 years. We had visited their branch and the response was good.
Its easy accessible and to redeem so that i have invested the money in Fixed Deposit with HDFC BANK. I have invested the money of Rs. 2.5 lakhs and they have provided me a interest rate of 7.5%. There is no locking period. I didn't got any additional charges till now.
I have paid the money of Rs. 4.5 lakhs as a fixed deposit in the Indian post office. For the safety purpose, i have chosen the post office account. They are offering me a interest rate of 7.9%. There is a lockin period of 5 years. If i withdraw the money in 1 year, they will reduce the interest rate of 2% and after 3 years, its 1%.
Interest rates are less in Central Bank of India so I had taken a fixed deposit. I have invested the money of Rs. 1 lakh in my wife's name. Branch is near from my place so I have chosen this bank. Yearly once, I get the money of Rs. 6,765 for the interest. There is a locking period of 1 year.
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