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Where Should I Invest My Money: Mutual Funds, Fixed Deposits, or Recurring Deposits?

Published On Mar 09, 2022 10:15 AM By InsuranceDekho

A fixed deposit is a type of financial investment offered by banks and non-bank financial companies (NBFCs) that allows investors to deposit money and earn a greater rate of interest than a regular savings account. Recurring deposits, or RDs, are a type of investment that allows investors to make regular monthly contributions and save money over time. Depending on their needs, investors may pick the deposit's term and the minimum monthly payment they want to make. RD plans are more flexible than fixed deposit plans, and they are often favored by those who wish to open an account to save money and establish a rainy-day fund. A mutual fund scheme is a form of financial instrument made up of a pool of money gathered from several different participants. Mutual fund firms engage in securities such as corporate shares, bonds, stocks, loans, and other assets through AMCs. These open-ended investments are managed by AMCs. Mutual fund firms invest in a variety of securities. This enables its investors to increase their money by investing.

Fixed Deposits Have Many Advantages

The following are some of the benefits of having a fixed deposit account:

1. Encourages You to Save

Because fixed deposit accounts compel the holder to invest a lump sum amount for a certain length of time, the holder will accidentally save money. Premature withdrawals attract penalties. For example, if an Rs. 1,00,000 FD with a 9% interest rate is withdrawn after a year, the interest would be paid at the rate in effect at the time, which will be less than 9%. The penalty you incur for a premature withdrawal is the loss of interest.

2. Benefits from Taxes

Section 80C of the Income Tax Act of 1961 provides tax incentives for tax-saver FDs. It belongs to the Exempt-Tax-Exempt classification. Although the interest generated on these FDs is taxable, you can claim a deduction for the amount deposited up to Rs. 1,50,000.

3. A Risk-Free investment

Fixed-income securities (FDs) are risk-free investments. FDs, unlike other investment options, are not based on market conditions. After the maturity term, you will get a guaranteed sum of money. For risk-averse investors, this is an appealing investment.

The Advantages of Recurring Deposits

The following are some of the advantages of recurring deposits that make them a viable investing option:

  • Recurring Deposit is the simplest and most convenient investing option available on the market. You just need little documents to start an RD Account with the same bank where you already have a Savings Account.

  • However, if you intend to create an RD Account with another bank, you will need to contact the local bank office and submit an application form, together with your basic KYC (Know Your Customer) papers. You may need to create a savings or current account with them as well.

  • Unlike Fixed Deposit plans, where one must invest a lump sum amount, Recurring Deposits do not demand a big amount of money at one time. You can make monthly payments using internet banking or a cash transfer.

  • An RD program requires you to deposit a set amount of money every month for a set length of time. This will develop in a person the habit of saving regularly. The amount to be invested and the duration of the investment will be determined when the Recurring Deposit account is established. However, you should keep in mind that this investment might last up to ten years.

The Benefits of Mutual Fund Investing

1. Management Expertise

Investors may not have the time, knowledge, or resources to conduct research and make individual stock or bond purchases. A mutual fund is run by full-time, professional money managers with the knowledge, experience, and resources to acquire, sell, and monitor investments. A fund manager keeps a close eye on investments and rebalances the portfolio as needed to satisfy the scheme's goals. One of the most essential benefits of a mutual fund is portfolio management by expert fund managers.

2. Cost-Effective

The cheap cost of mutual funds is a significant benefit. Mutual fund schemes have a low expense ratio due to large economies of scale. The yearly fund running expenditures of a scheme are indicated as a proportion of the fund's daily net assets in the expense ratio. Administration, management, and advertising-related charges are examples of operating expenses for a scheme

Take Away

As noted, investment is putting money to work to increase it. When you buy in stocks or bonds, you are placing your money into the hands of a company and its management team. Although there is some risk, it is compensated by a positive projected return in the form of capital gains, dividends, and interest flows. Cash, on the other hand, will not expand, and may very well lose buying value over time owing to inflation. Simply put, without investment, businesses would be unable to generate the cash necessary to expand the economy.

Disclaimer: This article is issued in the general public interest and meant for general information purposes only. Readers are advised not to rely on the contents of the article as conclusive in nature and should research further or consult an expert in this regard.

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