A comparison of benefits: Investment in Mutual Funds vs Recurring Deposits

Summary: If you want to invest your money and watch it grow, you have the option of mutual funds and recurring deposits. Click here to find out which one suits you best!

13 Dec 2022 by Team FinFIRST

There are several ways to invest your money. However, two options are primarily popular – mutual funds and recurring deposits. The benefits of mutual funds include a Systematic Investment Plan (SIP), the power of compounding, and more. On the other hand, the benefits of recurring deposits include lower minimum investment, higher interest rates, and flexible investment tenure. Before you pick either or both of them, here are a few things to know.

Benefits of Mutual Funds

Mutual funds pool money from multiple investors and invest it in different market securities based on the fund's objective. They offer several options based on risk, objective, market capitalisation, etc. If you invest in them, you can enjoy the following advantages.

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SIP investments: Mutual funds offer the option to invest systematically in instalments through a SIP. Hence, you do not necessarily have to invest in a lump sum and can instead invest in smaller quantities at your preferred pace. For instance, if you have just started your career and cannot invest a high amount, you can start investing with an amount as low as Rs 500 per month.
Multiple investment options: If you are looking for more than one investment option¸ mutual funds can be ideal. There are several types of funds, such as equity, debt, hybrid, solution-oriented, etc. You can select a fund according to your needs. If you are looking for high risk and return, you can invest in equity funds. However, you can invest in debt funds if you want to preserve your wealth.
Market-linked returns: Mutual Funds investments in stocks which are market linked. These funds are managed by a team of professionals in a manner to provide better returns against the broader market.
Tax benefits: You can enjoy tax benefits of up to Rs 1.5 Lakh on Equity-Linked Savings Scheme (ELSS) under Section 80C of the Income Tax Act, 1961. This means if you claim a deduction of Rs 1.5 lakh each year, you can save up to Rs 46,800 every year.

Benefits of Recurring Deposit (RD)

An RD is a savings scheme that helps you save a pre-fixed amount periodically. Like SIP, RDs also allow you to make smaller instalments instead of a lump sum amount. An RD can have a maturity period ranging from six months to ten years. If you invest in it, you can enjoy the following advantages.

Lower risk: RDs are non-market-linked and therefore offer lower risk. You enjoy higher safety of capital and earn interest on your savings. If you do not like the idea of your returns fluctuating over time, you can consider using an RD.
Suitable for all goals: Since RDs have tenures ranging from six months to ten years, you can use them for a vast number of goals, right from short-term to long-term investment needs. If you want to buy a mobile in the next 12 months? Want to save up for a vacation for your 10th wedding anniversary due in five years? Use an RD!
Higher interest rate: RDs offer higher rate of interest ranges from 5% and 7%. This can help you build savings at a steady rate and be financially secure. For instance, if you invest Rs 3,000 in an RD every month for five years and earn an interest of 7%, you will make a total profit of Rs 35,800. The total value of your investment will be Rs 2,15,800 at the end of the tenure, against your total invested capital of Rs 1,80,000.

To sum it up

No matter your investment goal, finding the right investment product is essential. Mutual funds and recurring deposits can both offer great financial solutions. They are cost-effective, provide better returns, and can be used conveniently without any hassles.

IDFC FIRST Bank offers various investment options, including recurring deposits and mutual funds. You can browse through these options and invest in both or one based on your goals and risk-appetite. Further you can track all your banking needs with the IDFC FIRST Mobile Banking App

Disclaimer

The contents of this article/infographic/picture/video are meant solely for information purposes. The contents are generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. The information is subject to updation, completion, revision, verification and amendment and the same may change materially. The information is not intended for distribution or use by any person in any jurisdiction where such distribution or use would be contrary to law or regulation or would subject IDFC FIRST Bank or its affiliates to any licensing or registration requirements. IDFC FIRST Bank shall not be responsible for any direct/indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information mentioned. Please consult your financial advisor before making any financial decision.

The features, benefits and offers mentioned in the article are applicable as on the day of publication of this blog and is subject to change without notice. The contents herein are also subject to other product specific terms and conditions and any third party terms and conditions, as applicable. Please refer our website www.idfcfirst.bank.in for latest updates.