Mutual Fund VS RD VS FD, Know which is best for savings
Mutual Funds, RD, or Fixed Deposits (FD): Every person wants their hard-earned money to be safe and grow over time. But the question is, which savings option is best: mutual funds, fixed deposits (FDs), or recurring deposits (RDs)? All three are popular, but they have different advantages and risks.
Traditional Security of Fixed Deposits (FDs) and Recurring Deposits (RDs): Fixed Deposits (FDs) and Recurring Deposits (RDs) are considered among the safest investment options for Indian families. In an FD, you deposit a lump sum amount and receive the principal along with interest at a fixed rate after a predetermined period. In an RD, money is deposited in small installments every month. Both these options offer stable and guaranteed returns, but the interest rates are limited. Currently, the interest rate on FDs and RDs is approximately between 6-7%. This means that if the inflation rate is higher, the real return on investment may decrease.
The appeal of mutual funds: Mutual funds, especially equity-based funds, can offer significantly higher returns than FDs and RDs in the long run. Over the past several years, good equity funds have delivered average returns of 12-15%. However, these returns are subject to market fluctuations and carry higher risk. But by investing small amounts regularly through a Systematic Investment Plan (SIP), you can mitigate the impact of market volatility.
Comparison and Balance:
- FD/RD: Safe, guaranteed returns, but lower interest rates.
- Mutual Funds: Potential for higher returns, but also higher risk.
- Liquidity: Fixed deposits (FDs) and recurring deposits (RDs) incur penalties for premature withdrawal. With mutual funds, you can withdraw your money anytime, although it’s generally better to stay invested in equity funds for the long term.
