Fixed Deposit vs Mutual Fund in India

Fixed Deposit vs Mutual Fund in India

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Fixed Deposit vs Mutual Fund

Where to Invest Money

Are you interested in investments? And you do not know how and where to invest your money? Then one of the best option in India is to invest in mutual funds.

What is a Mutual Fund?

You might have heard of mutual funds but do not know what they are or how to select the right one. Mutual fund consists of a group of investment types. There are many different types of mutual funds. It consists of a mix of several different types of investment vehicles, such as stocks, bonds, or derivatives, or it may consist of nothing but stocks that are part of a certain sector of the economy, or it could be just bonds.

Types of Mutual Funds in India

In India there are mutual funds that consist of nothing but technology stocks. There are also mutual funds that are comprised of stocks that have a similar market capitalization (such as small-cap & mid-cap funds, large-cap funds). Some mutual funds might contain several different types of securities (such as stocks, bonds, etc.) that all fall within the same risk classification (high-risk, medium-risk, low-risk).

What is NAV of a Mutual Fund?

Like shares / stocks, mutual funds have a price per unit, also known as the Net Asset Value (NAV). The NAV is calculated by dividing the total value of the fund divided by the number of shares outstanding. Like stocks, the price of mutual funds fluctuates on a daily basis and it can be sold just like any other security.

How much Money can I make from Mutual Fund?

First of all, when deciding in what fund to invest, you need to think about your investment goals.

  • Long-term capital appreciation
  • Receive immediate income from your investment
  • Evaluate your risk tolerance.
  • High risk fund. Try your luck in a speculative fund to potentially receive a better return
  • Low risk fund. Capital preservation, low growth.
Fixed Deposit vs Mutual Fund

High Risk or Low Risk Mutual fund is better ?

If you like to preserve your capital, then you should consider a mutual fund that consists of low risk equities and conservative bond and money market instruments. You can also have a mix of investments, then you should look for a balanced fund. If you have a very high risk, which can give very high capital appreciation, then you should consider a high-risk common stock or high-yielding bond fund.

Fees and Charges for Mutual Fund

Mutual funds are different than stocks when it comes to fees and charges. Like stocks, funds are subject to capital gains taxes. Some funds are subject to a front-end and/or back-end entry charges. If there is a front-end load, that means that a percentage of the initial investment is automatically deducted to pay for commissions to the fund. If there is a back-end load, the investor must pay a fee when the security is sold.

Why are Mutual Funds Good for Beginners in Investing

Mutual funds will help you make some decisions regarding your investments. In India there are hundreds of different funds available, and brokerage houses often have their own set of funds that they create for sale to their customers. It is always better to contact your broker or financial advisor to help you identify the best investment vehicle for you. Make sure you review the fee structure of the mutual fund you are interested in before you invest.

Diversification of Mutual Funds

The collective funds are invested into a wide range of categories, it can help to reduce risk exposure faced by the investor in the Indian Markets. Suppose the funds are invested in 10 selected stocks, and 4 of the stocks perform badly, in spite of everything the overall performance of your portfolio would not be that bad due to the averaging effect of the stocks’ performance.

High Liquidity of Mutual Funds

Mutual Fund Units can be sold easily within a short period of time. Asset Management company is always there to repurchase your units.

Professional Management of your Funds

The most important aspect is to manage your money invested in the market. Most of us do not have the knowledge, flexibility and the comfort of monitoring the market at all times, it would be great to have a professional hired to sit there and make sure that your money works hard enough for you!

In India the fund managers are professionally trained and have years of experience in their field of expertise, something that not every one would have.

Initial Capital is very low

To invest into the stock market, a big capital should be available to you, so that you can diversify your investment. On the other hand, in mutual fund, with a small capital spend, you can be part of the bigger investment by the asset management company.

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1 COMMENT

  1. Mutual funds or fixed deposits? The answers are varied depending upon the individual choice and preference. Usually a young person is more open for such risk to earn more money in a short period of time. While an old man believes in earning more money at short period of time is prone to risk. Mutual funds are usually for those who follow the various trends of the market, have high risk appetite.

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