No doubt, the fixed deposit can give a guarantee for fixed income. But the returns from the fixed deposit are lower than mutual funds. This article on comparative analysis will give you a clear picture.
While investing in FDs, banks give money to businesses in the form of a loan. And if you invest in mutual funds, then AMC (asset management company) invests its accrued funds in the share market to purchase equities.
If we discussed the risk with your funds, then bank FD does not associate such risk, but in a mutual fund, the risk may be associated with your investing funds.
Which is a great investment option for 10 years, mutual funds or FD? As the risk associated with FD is less, let us understand how FDs are considered safest than mutual funds.
Why fixed deposits
Here are some things in which fixed deposits are safest than mutual funds.
Portfolio diversification
Banks have a diversified portfolio as they lend to business and retail customers. Banks offer multiple loans, like home loans, personal loans, etc., to attract customers.
On the other hand, equity mutual funds are only invested in 25-100 companies. In this way, FD has a more diversified portfolio than mutual funds.
Insurance on FD
Every FD is insured by deposit insurance and credit guarantee corporation, a completely owned subsidiary of RBI (reserve bank of India). However, this investment option covers the maximum amount of 5 lakh.
Guaranteed return
Hence, it is determined that no risks are involved in FD. As a result, more returns come back with guaranteed fixed deposits.
Risks in mutual funds
Here is the risk that occurs when you are investing in mutual funds.
Credit risk
If you invested large-cap mutual funds, these funds would invest accrued amounts in major 20-50 listed companies of India. To understand the real worth of companies, you have to learn about the fund that represents the leading companies in the stock market.
Also, the Indian economy has a great dependency on such companies, so it will be impossible for these companies to default at the same time, and all your funds in investment go down the drain.
Market risk
All of us hear daily how much risk is associated with mutual funds. If you stay in the stock market by investing in mutual funds for 10 years, it will give you negative returns.
If you made a long-term investment, you depend on the stock market here. In the case of the mutual fund, if you do not check the stock market regularly, all investments will be ruined.
Conclusion
This article is based on the comparable factors between the FD and mutual funds. It tells you about the benefits of investing in FD and the risks involved in mutual funds investment. Hope you can make your informed decision by keeping all the factors mentioned above in your mind. It is concluded that FDs are safest than mutual funds.