People of all income groups are very cautious when it comes to money matters. The most important criteria is to invest it safely. One of the most popular forms of safe investments that people consider are Fixed Deposits and Mutual Funds. It often leads to confusion as to which one should you opt for, especially for the short-term. Instead of looking at FD vs RD or FD vs Mutual Funds, it is more important to understand each one separately and then take a decision based on your investment goals.
Let’s start with understanding each one.
- Fixed Deposits
A fixed deposit means you deposit a lump sum amount with the bank for a fixed period. The interest you will earn is pre-decided. At the end of the tenure, you will get the principal amount along with interest earned.
- Major Advantage: You can choose deposit periods from 7 days to 15 years, and be assured of the amount you will receive when the FD matures. Use the fixed deposit calculator to be sure of the amount you will earn at the end of the tenure.
- Major Disadvantage: You may face a penalty in case you withdraw money before the tenure is over.
- In the short term, the income you earn is safe but limited.
- Recurring Deposits
A recurring deposit is similar to a fixed deposit, but instead of a lump sum amount, a recurring amount is deposited with the bank. In simpler words, suppose you choose an RD for ten years with a monthly deposit of Rs. 1000. So, for the next 120 months, every month, you will have to deposit a sum of Rs. 1000 to your RD.
- Major Advantage: You save as you earn, and if the need arises, you can discuss with your bank to increase the RD amount.
- Major Disadvantage: If you miss a payment, you may be charged a penalty.
- In the short term, the income you earn is even lesser when compared to an FD.
Difference between FD and RD
Before we move on to Mutual Funds, for your basic understanding, when you do an FDs vs RD check, consider the amount you deposit and how you deposit it with the bank – as a lump sum or recurring. Use the FD interest monthly calculator to know which one suits your needs better.
- Mutual Funds
One of the most popular investment options, you pool your money with a group of investors. The Mutual Fund group or company form the group. The pooled money is used to buy stocks and shares in your name.
- Major Advantage – You deposit a fixed amount as you earn, and if the market is up, you can earn a handsome amount.
- Major Disadvantage – The earnings are fully dependent on the market conditions, and it is a risky investment. The value of your portfolio can change every day.
· In the short term, you can earn or lose, it all comes down to the decision taken by the Mutual Fund company and the prevailing market conditions.