fixed deposit

Why Do People Choose FD Over Mutual Funds

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We all want to increase our income from additional sources, apart from our regular job or business. Investments help us in doing that. There are various investment options, foremost among them being Fixed Deposits (FD) and Mutual Fund (MF).

For long, various types of Fixed Deposits like Regular FD, tax saver FD, etc. have been popular investment options for a majority of us Indians. Over the last decade or so, however, the mutual fund industry has seen increased investment as well.

The returns on term deposits interest rates are lower than MFs. But, they prove sufficient for people looking for security. You wouldn’t want your earnings to fluctuate according to market whims – which is what happens with an MF investment. We can manage with lower returns, but not without the safety of our money – a benefit FDs provide, among many.

Reasons for preference of FD over MF

A majority of us choose to invest in FD instead of MF. In this article, we will look into the reasons for the same.

  Assured returns – No matter what is the quantum of your fixed deposit investment, you will earn interest at the prevailing rate at the time of investment. Fixed deposits are immune to market fluctuations, thus making it one of the safest bets for you.

  Flexible investment period – You can determine the tenure of your FD investment as per your requirement and comfort level. In India, you can choose any tenure between 7 days and 10 years, subject to specific terms. If you want, you can maintain several fixed deposits in the same bank, each for a different tenure.

  Option of loan against your FD – In times of need, you can pledge your FD as security with your bank & obtain a loan against it, up to 90% of your FD value. You will continue to earn interest on your fixed deposit even after taking the loan. Thus, repayment becomes even easier!

  Receive interest on the time chosen by you – You will receive the FD interest monthly, quarterly, or yearly – as per your instructions. You can also change the mode after having selected one if the situation demands so.

  Advantageous for senior citizens – Senior citizens in India are eligible to earn a higher interest on their FD investment, making it very popular among them.

  Helps during exigencies – In times of emergency, when there is a sudden need for liquid money, you can dissolve your FD. The move allows you to withdraw the funds, against a charge levied by the bank for premature withdrawal. However, as advised by us above, it’s always better to take a loan against your FD, instead of liquidating it.

To conclude, your primary aim is not merely to earn more – but to earn more at a steady rate while keeping your investment safe — fluctuations in earning put your plans in disarray, also putting your money at risk. But an FD does just the opposite. So, different types of fixed deposits remain the leading choice of investment over mutual funds for a vast section of the populace in India.

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