Fixed Deposits vs. Mutual Funds – Know The Difference

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It is wise to analyze different investment instruments before using them to build your investment portfolio. One question which might confuse investors is whether to invest in low-risk investment instruments such as fixed deposits or high-risk investment instruments like mutual funds? Both of these options have different benefits, and therefore you can use them both to diversify your investment portfolio after analyzing your risk-taking ability and financial requirements. To understand them better let us know the differences between them:

Investment method 

In mutual funds, several investors pool their money by investing in equity, bond or any other money market options. On the other hand, fixed deposits do not involve the pooling of money as an investor invests a particular amount of money for a fixed period of time individually.

Moreover, fixed deposits offer a fixed interest rate whereas the interest earned in a mutual fund fluctuates according to the market variables. 


The lock-in period of mutual funds depends on the type of mutual fund you have chosen. Also, you can withdraw your investment whenever you feel like but only after completing a specific period of time which is mentioned in the application form. 

When it comes to FDs, the tenor can be anywhere between one to ten years. Moreover, you can reinvest in a particular FD by investing both amount and interest or by only investing the principal amount. With such flexibility in investment terms, FD proves to be a better investment to help you ensure constant liquidity 


Fixed deposit schemes offered by banks and NBFCs are both safe as the interest rates offered on a particular scheme cannot be modified or changed once you apply for it. 

Mutual funds might offer you higher interest rates but there is no guarantee that the interest rates will remain constant. Changing market conditions influence the interest rates and therefore you might gain or lose capital over a specific period of time. 

How to choose between mutual funds and fixed deposits?

Analyze the risks 

Mutual funds are for those individuals who are capable of taking risks and this is possible only when the investor is a beginner and still has enough time to consolidate his savings. On the other hand, anyone can invest in a fixed deposit if he/she wants to earn surplus returns in a safe way. 

Bajaj Finance Fixed Deposit schemes are accredited for their stability and safety by ICRA and CRISIL Ratings which are reliable third-party organizations. Therefore, you can be assured of your savings when you are investing in these FDS.

Diversify your portfolio 

A diverse and balanced investment profile is a must if you are willing to earn high returns for a long time. Therefore, if you have invested in many low-risk investments then you can think of investing in a mutual fund to maximize your returns. A fixed deposit can be used to balance any investment portfolio as it guarantees maximum returns with minimum risks.

Ladder your investments

You can ladder your investments by investing in a bunch of fixed deposit plans that have different maturity dates so that you earn the benefit of surplus cash flow on a regular basis that can be further invested or spent on expenses.

NBFCs like Bajaj Finance allow you to select the FD tenor between 12 to 60 months and you can also prefer periodic or cumulative interest payouts as per your requirements. Moreover, you can calculate your interest earnings with the help of their FD calculator which helps you to predict your earnings in advance. 

These were some key differences between mutual funds and fixed deposits. Also, while evaluating the basic differences between FD vs. mutual funds, you must also analyze your risk-taking ability and capital requirements.

Bajaj Finance and some other NBFCs allow you to earn interest rates up to 8.95 %. Moreover, Bajaj Finance also lets you use your FD as collateral for availing loans, which can be repaid in easy installments. As a result, your investments plans are not disturbed, and you can keep gaining your periodic interests as well. Therefore, you can think of these plans to build a rewarding investment portfolio.

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