Difference Between Mutual Fund and Fixed Deposit
Mutual Funds

Difference Between Mutual Fund and Fixed Deposit

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Are you planning to invest your surplus money and confused between Mutual Fund & Fixed Deposit? Here you can understand about both the options in a very simple way and invest your money safely.

In India, the first choice of investing money is Fixed Deposits (FDs) for many people as they trust in Fixed Deposits (FDs) because it is easy to understand. We have also seen in our family where our forefathers were also invested in FDs. FDs is being done for generations and on the other hand, the mutual fund is becoming very popular nowadays. Mutual funds have so many options to invest in. Both, Mutual Funds and Fixed Deposits are popular choices among investors. Each of these financial instruments is unique and provides investors with good returns over a period of time. Let’s see what the differences between the Mutual Fund and Fixed Deposit are.

Difference Between Mutual Funds and FD:


Mutual Funds (MF)

Fixed Deposits (FDs)

Risk Factor

MF carries a much higher risk as it is influenced by the financial market.

FD carries zero risks as the returns are pre-determined.

Return on Investment

Mutual Fund returns are linked to the financial market and the type of fund.

FD is pre-specified and does not change throughout the tenure.

Rate of Returns

The rate of return on Mutual Funds depends on the market volatility. If the market goes high the returns increase and vice-a-versa.

The interest rate on FDs is generally fixed depending on the tenure and type of FD.

Impact of Inflation


Mutual Fund returns are inflation-adjusted which enhances their capability to generate better returns.

Fixed Deposits remain unaffected from the inflation as the interest rate is pre-decided.


Invest in MF is a kind of liquidity as it can be sold at any time.

Fixed Deposits are not liquid as the invested amount remains locked for a certain period of time.

Capital Gain

Capital gains depend on the holding period in MF.

There are no capital gains possible in FDs.


Mutual Funds carry certain charges and expenses which are deducted as a part of managing the fund.

FDs do not come with any expenses over the course of initiation or tenure of the deposit.



You can withdraw from MF at any time. If it is before the stipulated time, only 1% charges otherwise it’s free.

To break the FD before time, you need to pay the penalty for the same during premature withdrawal.


Mutual Fund depends on the holding period. Both short-term capital gains and long-term capital gains are taxed differently.

The interest earned from the FD is taxable depending on the tax slab of the individual.

Benefits of investing in Mutual Funds:

  • Diversification of investment
  • Minimum investment starts from of ₹ 500
  • Offers high returns, especially from equity-based mutual funds
  • Funds are managed by professional financial experts
  • The surplus amount can be easily allocated to the existing portfolio via top-ups
  • Systematic Transfer Plan (STP), Systematic Investment Plan (SIP), or Lump sum modes of investment

Benefits of Investing in Fixed Deposits:

  • Zero risks as it is government-backed
  • Guaranteed rate of returns
  • Entitled to tax deductions


The decision of investment is depending on two factors: Investor’s risk capacity and the surplus amount. In terms of risk, an FD is a better option as it carries zero risk and guaranteed returns. In terms of returns, a mutual fund is a good option. In FD, your amount is blocked but in MF, you can withdraw or switch any point of time. And if your horizon is for a long term, you will get a much better return in Mutual Fund.

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