Why it is better to transfer your fixed deposits to the mutual funds?

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Fixed Deposits or FDs is one of the traditional investment instrument. Investing in fixed deposits is considered very safe which offers a stable interest rate throughout the investment tenure. The interest rates for fixed deposits is pre-decided by the government and does not get affected by the inflation rate. Whereas investing in Mutual Fund online helps in obtaining high return with tax deduction. You need to invest for a good 2 to 3 years to gain from mutual funds with high returns. You can also invest in mutual funds for tax saving but this investment tool is dependent on market conditions.

Invest in Mutual Fund Online or Fixed Deposits

Usually, individuals invest in fixed deposits which has a very low risk with stable return. But the interest rates for fixed deposits do not get affected by the inflation and thus remains constant throughout. Recent study has revealed that, the earnings of people investing in fixed deposits has been lowered by 25%. So, you can shift from fixed deposits to Mutual Fund online investment. Depending on your risk-taking capacity, you can invest in equity, balanced or debt funds. The returns from Mutual Fund online is dependent on the market volatility and can yield 10% to 15% return in the long run.

Following are the points of difference between fixed deposits and invest in mutual fund online-

Risk- The interest rates for fixed deposits remains fixed and do not change over the investment period. Fixed Deposits investment is not dependent on market fluctuations and volatility. But when you opt to invest in mutual fund online, your return will be based on the market conditions and is quite risky. When you invest in mutual funds with high returns, you need to take some risk. But if you invest in ultra-short duration or liquid funds, then the risk factor is almost negligible and is perfect for fixed deposits substitute.

Impact of Inflation- As you know the interest rates for fixed deposits do not get affected by the inflation and the return you will get is pre-decided. But when you opt to invest in mutual fund online, the return is inflation-adjusted. So, you will get better returns when going to invest in mutual fund online.

Return- When you invest in fixed deposits, you will get a fixed return over a specific time period. But to invest in mutual fund online, you can earn a higher return. The amount of return you will earn will be completely based on how the stock will perform in the market.

Withdrawal- If you want to withdraw your fixed deposit amount, then you need to pay a certain penalty charge which is pretty hefty. But when going to invest in mutual fund online, you can withdraw the amount after the holding period is completed. Before that period, your withdrawal will be charged an exit load of 1% which is quite low.

Costs- No expenses are involved in fixed deposits investment. But to manage your mutual fund portfolio, you need to bear some cost which gets deducted when you go for invest in mutual fund online.

Taxation- If the fixed deposits earn more than Rs. 10,000 in a financial year, then you will be taxed 10% TDS on the interest earned. When you opted to invest in mutual funds for tax saving, you will be taxed as per long term or short term capital gains after indexation. LTCG is charged 10% on the returns and STCG is charged 15% above Rs. 1 lakh. If you go for long term debt fund investment, then LTCG is charged at 20% after indexation.

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