Mutual Fund vs. Fixed Deposits– Understand the Difference and Benefits

If you are an investor on the way to researching the financial markets, you may find mutual funds as a popular investment avenue but when you compare its popularity with fixed deposits, the popularity of fixed deposits will amaze you. Both investments are on different investing lines. Before investing one should understand what is investment, its advantages and disadvantages. Here you will find out the differences between mutual funds and fixed deposits and FD benefits. 

Fixed Deposit 

Fixed deposit is the safest investment avenue providing guaranteed returns besides capital preservation. Interest rate is set before you invest and applied to the entire tenor of investment. It is the investment of a single individual. He is entitled to receive every penny of interest and it is nearly impossible to lose returns on fixed deposits.

Mutual funds

Mutual funds are the professionally managed investment portfolios of different financial securities like equities, bonds. A mutual fund carries over a hundred types of securities. Various individual investors contribute in a mutual fund through money pooling and they are participants in the gains as well as losses proportionally. They need to pay the fee to fund managers to invest in mutual funds.


Following are the differences between Mutual Funds and Fixed Deposits that will make you more clear about your investment decision: 

Management Expenses

One should invest in mutual funds with caution about expense ratio and sales charges. Expense ratio is the annual fees and commissions. These types of fees may reduce overall returns on your investment. On the other hand, fixed deposits are free from such high maintenance costs. You just need to find a bank or NBFC offering a higher interest rate. Open an FD account with a credible NBFC like Bajaj Finance and receive returns up to 6.85% in your savings account directly without any deduction of fees. 

Sales Charges 

Investors have to bear exit loads of 1% or more at the time of withdrawal. On the other hand, there are no charges to withdraw your funds from a fixed deposit account on the maturity date. If you withdraw an FD prematurely, you will have to pay a penalty for premature withdrawal. But here is the solution to avoid such penalties. You can get a loan against fixed deposit up to 90% of its value. Bajaj Finance FD offers the provision of availing a loan against FD.


Different type of mutual funds offers different type of returns. There is no guarantee of positive returns on your investment in mutual funds. Whereas, returns on fixed deposits are assured at a certain period. You can earn two types of interest on your fixed deposits. One is cumulative interest on the maturity date and another type is non-cumulative interest on frequent intervals as per your preference to meet your living expenses. Using Bajaj Finance FD calculator, you can calculate both types of returns within a few seconds.


Investors cannot help in taxes involved in mutual funds. Mutual funds attract capital gains based on redemptions and gains. On the other hand, interest income on fixed deposits is taxable. Investors need to pay TDS @7.5% if the FD returns exceed Rs. 5,000 in a financial year in case of Company FDs.


Mutual funds are directly connected to the stock market where price fluctuations affect every investment. The risk involved in mutual funds is high. Whereas, fixed deposits are free from market forces. They offer a fixed rate of returns without affecting the market fluctuations once your FD account opens.


Being a market-linked plan, a flexi mutual fund SIP is vulnerable to volatility. It involves some amount of risk. So, it is not recommended unless you have a good risk appetite.

Bajaj Finance SDP as it is called is a risk-free investment as it is not exposed to market trends. Moreover, Bajaj Finance FD has high stability ratings from ICRA and CRISIL, making your investment safe and returns assured.

Interest Rate

The returns on flexi mutual fund SIP varies between 5-16%, depending on whether your money is invested in debt-based funds or large-cap equities. You have no control over the returns.

Bajaj Finance SDP offers a high and fixed interest rate up to 7.35%. It also offers lucrative senior citizen FD rates. You don’t have to worry about the instability of returns. The same interest rate remains fixed and the same for the tenor you choose. There are no ups and downs in the interest rate during the tenor.

Know the Returns Beforehand 

There is no way to estimate your returns on flexi mutual fund SIP because of the market-based returns.

However, Bajaj Finance SDP FD maturity calculator enables you to know the exact interest amount on every deposit, payout per month, interest earned and total payout. This way, you can plan your investments judiciously.

Premature Withdrawal

The premature withdrawal is a complex process in a flexi mutual fund SIP and can take weeks if you need emergency cash.

Bajaj Finance allows you to break anyone or more deposits in an SDP prematurely while letting other monthly deposits earn interest. The process is quick and hassle-free. In fact, you can also avail loans against this flexi fixed deposit scheme if you want liquidity without withdrawing it prematurely.

Bajaj Finance SDP has been accredited for its safety and stability by reputed third party credit rating organisations such as CRISIL and ICRA. With FAAA/Stable rating from CRISIL and MAAA/Stable rating from ICRA, your investment is safe with an SDP, unlike an SIP.

Benefits of Fixed Deposits

You will end up in your research with the following benefits of a fixed deposit account:

  1. Assurance of returns at a predetermined rate of interest that is based on the tenor, interest rate frequency and amount to be invested in the FD. For example, with CRISIL’s FAAA/Stable rating and ICRA’s MAAA/Stable rating, your FD investment with Bajaj Finance is assured of guaranteed returns. 
  2. Easy liquidation of your fixed deposit account
  3. Easy loan facility against a fixed deposit. 
  4. No TDS deduction for the interest income below Rs.5,000 in case of company FDs.
  5. Easy withdrawal at maturity without any fee. 
  6. No risk investment which is unaffected by the market fluctuations once your FD account is opened. 
  7. Higher interest rates for senior citizens. For example, with Bajaj Finance FD seniors can earn an additional interest rate benefit of 0.25%.

The Bottom Line

Every type of investment in the stock market carries risk at a level. Securities mutual funds may go down in value and you have to bear losses. On the contrary, fixed deposits are known for fixed returns and a risk-free investment instrument. Keep your capital reserved along with assured interest in an FD account.

Mutual funds and fixed deposits are the two most popular investment options in India. However, the latter one is much popular with the investors who are looking to invest in risk-free and stable instruments. Fixed deposits offer guaranteed returns to investors whereas in mutual funds, many investors contribute together via securities like equities and bonds.

FDs offer better liquidity options, are more flexible in terms of tenor, and are less complicated when it comes to investment options. Some financiers like Bajaj Finance offer a high interest rate on their FD plans and are also safe from market risks. Therefore, you can consider of investing in Bajaj Finance FD.