Mutual Funds vs Recursive FD’s: Case study

We often see people debating between the two, and to be honest both have their pros and cons. Here’s how my personal experience was, the past 3 years with both instruments.

In my opinion, for a short-term investment, there won’t be much of a difference between the two. However, for a long time, with market fluctuations and corrections, any kind of investment in stocks (debts/bonds/index) can make a huge difference if done correctly.

Mutual FundsFixed Deposits
1You have to study and find the right mutual funds depending on how the market is performing and factors like world eventsYou don’t have to do anything as the bank takes care of the profit on interest that it needs to make
2Variable profit, not guaranteedFixed profit, guaranteed
3Returns are usually higher than market inflationReturns are usually lower than market inflation
4Yearly average return is around 14% (data based on past 5 years)Yearly average return is around 6.5% (data based on past 5 years)

It’s always suggested to invest in a diversified portfolio when investing in MF. That is, large-cap/blue-chip, medium-cap, dividend, and small-cap.

I invested Rs. 100,000 in mutual funds (ELSS, with 3-year lock-in), and another Rs. 100,000 in FD in the year 2020.

For mutual funds, I allocated the investment into the following categories:

  • Axis Long Term Equity Direct Plan Growth (50%)
  • Quant Tax Plan Direct Growth (25%)
  • Quant Small Cap Fund Direct Plan Growth (25%)

So by the end of 3 years, I got Rs. 1,33,207. That is 33% profit.

Please note that my investment was made in the post-COVID market and the market was just regaining momentum with various correctness and dividends in most of the equity funds. After some time, the Ukraine-Russia war hit the profits by at least 20%.

For FD, I invested in DBS Fixed Deposit with a 6.5% PA return.

By the end of the first year, I got Rs. 1,06,500.

Upon re-investment, by the end of the second year, I got Rs. 1,13,422.

So by maturity, I got Rs. 1,20,794. That is 20.7% profit.

InvestmentMutual fund maturityFixed Deposit maturity
Rs. 100,000Rs. 1,33,207Rs. 1,20,794

Is that extra 12.3% worth going through studying the market and understanding mutual funds? Well, time is money. And it stands corrected.💁‍♂️