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 Funds | Fixed Deposits | |
| 1 | You have to study and find the right mutual funds depending on how the market is performing and factors like world events | You don’t have to do anything as the bank takes care of the profit on interest that it needs to make |
| 2 | Variable profit, not guaranteed | Fixed profit, guaranteed |
| 3 | Returns are usually higher than market inflation | Returns are usually lower than market inflation |
| 4 | Yearly 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.
| Investment | Mutual fund maturity | Fixed Deposit maturity |
| Rs. 100,000 | Rs. 1,33,207 | Rs. 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.💁♂️