To compare the two options – to invest in mutual funds online or fixed deposits is like comparing apples and oranges, but let’s see what an investor looks for in investment.
Pro Invest in Mutual funds online (Equity funds)
– Higher returns
Equity mutual funds will easily outperform FDs, if you invest for a period of 3 years or more. Equity mutual funds will give you 15% returns as compared to 6% or 7% return from FDs.
So if you look at only final returns and have more than 3 years, equity mutual funds is a clear winner.
FDs are taxed at income bracket of the investor. Returns from equity mutual funds would be taxed at 10% in long term (more than a year) or 15% in short term (less than a year).
FDs are taxed at source, which means bank will deduct your tax and then give you your principal plus interest. Equity mutual funds are taxed only when you exit from your investment. This is a very big advantage.
– Additional upside
No upside from FDs meaning, a FD giving 7% will only give you 7% when the economy is doing well. In equity mutual funds you have better returns in a bull market.
– No lock in and no penalty
In FDs your funds get locked in for the entire duration and attract high penalties if FDs are broken before the maturity date. In equity mutual funds you can start investing in the best funds with no lock in clause and are free to withdraw funds anytime (generally funds attract a 1% exit load if withdrawn within one year).
– In favour of fixed deposits
The principal plus interest is more or less guaranteed by the bank. It would only default if the bank is in serious financial distress which very is unlikely. (Returns are not guaranteed by mutual funds, but are subject to market risk)
If you want to know – How are fixed maturity plans better than fixed deposit? Then click here.