Which is good mutual funds or FD for long-term savings?

Fixed deposits and mutual funds are the two top-of-the-mind investment options for those looking to save taxes and get good returns. While FD is a relatively conventional investment option, mutual funds are also catching up fast. If you are a new investor trying to figure out which is better among the two, read this article further to make an informed financial choice.

So, what do you understand by a fixed deposit or an FD, the oft-suggested investment option? It is an amount that you deposit with a bank for a fixed period (as defined by each bank). A pre-decided interest rate is earned as return on this money invested by you. Since fixed deposit interest rate is fixed, economic fluctuations like inflation bear no effect on the returns. It is suitable for both short-term and long-term investment.

On the other hand, mutual fund, as defined on Investopedia.com, is a “type of financial vehicle. It is made up of a pool of money collected from many investors. The money is invested in securities such as stocks, bonds, money market instruments, and other assets. Mutual funds are operated by professional money managers. The managers will allocate the fund’s assets. They try and produce capital gains or income for the fund’s investors.” Primarily, people invest in three types of mutual funds– Debt, Equity and Balanced Mutual Funds.

Investment in Debt Mutual Funds has assets in the form of government bonds, corporate bonds and the rest in equity markets. Equity Mutual Funds, on the contrary, invest its assets heavily in equity markets and the remaining in securities, government bonds, and corporate bonds. When an investment is equal in Debt and Equity Funds, those are called Balanced Mutual Funds. Inflation is already adjusted in mutual funds, thus making these a tax-efficient and long-term saving instrument for higher returns.

So, which is better? To determine what suits you the best, check the brief comparison between FD and mutual factors based on various factors.

Factor Fixed Deposit Mutual Funds
Risk Low or no-risk because of predetermined returns.


Up to 1 lakh insured in case of bankruptcy

High risk as money is invested in the financial market, which is prone to fluctuations. Equity mutual funds carry the highest risk and debt mutual funds the lowest.
Capital Gains No capital gains possible Depending on the duration of investment, vary from one mutual fund to another
Liquidity Illiquid because of a fixed lock-in period. Penalty levied on premature withdrawal. Liquid, saleable within a short period of time, low rate of depreciation in the fund value.


Taxation According to tax slabs applicable Depends on period of investment. Different taxes for long term and short term capital gains
Tax Savings 5-Year lock-in period mandatory for saving tax under Section 80c of the Income Tax Act Shorter i.e. 3-year lock-in period with better returns

All in all, investing in fixed deposit is simpler, but may not be suitable if you are expecting higher returns. You can start by getting an estimate using a monthlyFD interest calculatoror a SIP calculator online; or else, you may also consult a finance expert for better understanding.

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