Mutual Funds vs Bank Deposits: What should be your preferred financial product?
In earlier years when the inflation was at a high rate, Bank Fixed Deposit was an attractive choice, as there was zero risk and substantial return on the money invested. But, nowadays this is not the case with Bank Fixed Deposits. Though the risk level has not gone up the return side has faced a downfall.
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In earlier years when the inflation was at a high rate, Bank Fixed Deposit was an attractive choice, as there was zero risk and substantial return on the money invested. But, nowadays this is not the case with Bank Fixed Deposits. Though the risk level has not gone up the return side has faced a downfall.
So, investment in FDs ignoring the core benefits of Mutual Funds, SIPs, etc. is just because of the unawareness and lack of knowledge. Due to that we are nothing but losing the extra money that can be earned.
In last 3 years, the interest rates are drastically fallen around 40 percent, which is kind of freaking. People generally end up doing incorrect mathematics of the returns on investments. As every step in the downfall of interest rates appears very small. Rate cuts are generally around 0.25% to 0.5% which prima facie sounds nothing.
In India, we can also say, it is a traditional issue, that we have hardly seen our parents investing in Equity or Mutual Funds. At a young age when we have all our strength and skillsets with us and ample opportunities waiting for us to earn money, the risk involved in Mutual funds seems tiny as compared to huge returns offered by it. As in any worst case scenario, if we do not get return up to that level or say we get returns less than FDs Risk free Rate. We are able to re-earn that opportunity loss as we are at the start of our career.
We should always invest in Mutual Funds instead of FDs. FD holders would not hesitate to invest in Mutual Funds having low-risk profiles. These have nearly at par rates of return with those of fixed deposit income.
In addition to this, there lies a hidden benefit: Taxation. While withdrawing gains earned in Mutual Fund Investments, the tax required to be paid works out very less as compared to the case of withdrawal of interest of FDR. following table of comparison elaborates this.
For, easy calculations suppose the rate of return is 10.00% in both cases.
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