Difference Between FD vs Mutual Fund: Beginner’s Guide Before Investing

Investing in anything has always been tricky. We have to consider a lot of things before we actually decide on it.

What is the risk, how much is the risk, are the returns worth it, what are the benefits, how to invest, what are the criteria, etc. These are a few of the questions that pop into our heads every time we are confronted about investment.

So how do you decide? The answer is actually very easy. Research. You need to research all your options, know all the risks involved, and then wisely choose your method of investment.

There are two basic investment options that you can choose from. Fixed Deposits (FDs) or Mutual Funds. But, which one to invest in? Well, we are providing a brief guide about the difference between FDs and Mutual Funds given in this article.

What is a Fixed Deposit Account

A fixed deposit is also called a “Term Deposit” or even a “Time Deposit”. This investment option is offered by both Banks as well as Non-Banking Financial Companies (NBFC). A fixed deposit is the safest investment option that is available.

The customer simply has to deposit a lump sum amount into an account and make an FD of it for a certain time being, normally ranging from five to ten years. By doing so, the sum that you had deposited keeps generating interest.

A lot of institutes have a minimum limit which you can deposit for turning to an FD. The amount depends on the institute.

The interest rate too is not fixed and depends on the institute. This interest rate remains unaffected by the financial or economical fluctuations that happen in the market.

One thing that you should note is that once you have made an FD for the said amount of time, you cannot break the FD. In a situation that you have to do so, you have to pay a fee for doing so. This fee is also decided by the institution.

Also Read: 10 Best Investment Options in India for 2021 with Fixed Returns

Benefits of Fixed Deposit (FD)

  • Safe
  • Assured Interest on Monthly/Yearly Basis
  • Tax-Saving FD Options
  • Can be done Online as well as Offline
  • Can be reinvested after maturity
  • Flexible Tenure (7 to 10 days)
  • You can get a loan against an FD

What are Mutual Funds?

Mutual Funds are another form of investment. This investment is time flexible and can be done for however long the user wishes. In a mutual fund, an Asset Management Company or a Fund House pools out investments from individual investments.

The investor is given a Bond or a Share in return for the investment that is in line with the investment mandate. These Bonds or Shares can be liquefied at any time the investor deems fit.

Also Read: How to Invest in Mutual Funds: Simple 24-Step Guide & More

Benefits of Mutual Funds (MF)

  • Managed by fund managers
  • Pooled by Asset Management Companies
  • No Lock-In Period
  • Could be long-term or short-term
  • Can be transferred to a different fund easily
  • Low Cost
  • Can be made through Systematic Investment Planning (SIP)
  • Trackable
  • Allotted to different assets and shares
  • Offer liquidity
  • Work under Security and Exchange Board of India (SEBI) and Reserve Bank of India (RBI)

Also Read: 20 Best Mutual Funds Companies in India For Long Term Investment

Difference between Fixed Deposit and Mutual Funds

CriteriaFixed DepositMutual Funds
ReturnsFixed Returns on Monthly/Quarterly/bi-yearly/yearly or at the time of FD MaturityNo Fixed Returns. Depending on the current Market Conditions.
ExpensesNo extra expensesCharges are deducted in order to manage the funds
RiskNo risk involvedRisk is ever-present. Depending on the current market conditions
Lock-in PeriodYesNo
WithdrawalA penalty is to be paid if withdrawn prematurelyThe amount can be withdrawn at any given time without any penalty
InvestorA person paying Income Tax A retired employee House-keeper with enough money someone who doesn’t want to take any riskWho wants to achieve long-term or short-term financial goals someone who wants to earn higher returns compared to an FD even if a risk is involved someone who wants to expand their investment portfolio.
Offered ByBanks and NBFCAsset Management Companies and Fund Houses
LiquidityMedium to highHigh
RegulatorRBISEBI as well as RBI


Irrespective of whether you want to invest in an FD or a Mutual Fund, you need to make sure that you read all the details that are provided by the institute.

Make sure you know all the risk factors, the benefits, the interest rates, advantages, etc. before you go forth with your investment.

If you are looking for investing your money safely for your future use, it is better that you opt for an FD. And although Mutual Funds are riskier in comparison to an FD, the returns could be rewarding.

FAQs Related to FD v/s Mutual Funds

Q. Which is safer? FD or Mutual Funds?

Ans – An FD is much more secure and safe when compared to a Mutual Fund

Q. What is the interest rate of Mutual Funds?

Ans – Different Asset Management Companies and Fund Houses offer different Interest Rates for their Mutual Funds.

Q. Can I open an FD Account online?

Ans – Yes. An FD account can be opened online as well as offline. You simply need to visit the bank or NBFC website to know what is the procedure and what documents you require and you can open an FD.

Q. Can I withdraw money from my FD before maturity?

Ans – Yes. You can withdraw money from your FD pre-maturely. However, if you do so, you will have to pay a fee to do so.

Q. What is the interest rate for an FD?

Ans – For an FD the interest varies from bank to bank. The rates however range between 2.50% to 7.50%.

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