Fixed Deposits v/s Mutual Funds

“The biggest risk is not taking any risk… In a world that is changing really quickly, the only strategy that is guaranteed to fail is not taking risks. “

–Mark Zuckerberg

Though risk and return are two sides of the same coin, the risk is still the most feared factor amongst Indian investors today, especially the amateur investors. The fact that Mutual Funds are subjected to market conditions, makes investors so skeptical regarding investments with Mutual Funds. Fearing market volatility and safety of funds, investors find it safer to invest in Fixed Deposits rather than in Mutual Funds. But to overcome this conventional practice, it’s important for us investors to understand why and how Mutual Fund investments are a better option than Fixed Deposit and this article will help with that.

Here’s a table that lists the key differences between Mutual Funds and Fixed Deposits.

Characteristic

Fixed Deposits

Mutual Funds

1. Meaning Fixed Deposits are offered by both banking and non-banking financial institutions, where you deposit money for a fixed period and for a predetermined rate of return. Mutual Fund is an investment vehicle that collects money from multiple investors and invests the money, on their behalf, to buy securities.
2. Fund Management Decisions regarding Fixed Deposits have to be made by the investor himself. Mutual Funds are managed by professional funds managers who actively work on the portfolio to earn higher returns on the investment.
3. Schemes
  • Cumulative – Interest is compounded quarterly.
  • Non- Cumulative – Interest is paid at fixed frequencies.
  • Regular Plans: Charges distribution or transaction fee from your investments to pay commission to brokers.
  • Direct Plans: MyWay Direct Plans charge No Fees and No Commission on your investments. Read More: Why Direct Plans?
4. Minimum Investment The minimum investment for Fixed Deposits is INR 1000. (Varies from bank to bank). One can invest in Mutual Funds with as low as INR 500.
5. Maximum Investment Fixed Deposits have no upper limit. Mutual Funds have no maximum limit to the amount you can invest.
6. Investment Tenure Fixed deposits come with a pre-stated maturity period. It varies between 7 days to 10 years. The minimum tenure for Mutual funds is a day. And you can remain invested for more than 20 years too. It purely depends on your investment horizon.
7. Returns Fixed Deposits comes with a fixed interest rate that ranges between 7-8%, so one cannot make more than the projected returns. Since Mutual funds are subjected to market conditions, you can earn returns between 9-15% or even more. Thus, the potential to earn returns are higher and never fixed. Read More: Funds that provide >15% returns.
8.Withdrawals Premature withdrawals are permissible but are subject to fines. You can either break your Fixed Deposit or take a loan against it, to access your money. Mutual Funds are highly liquid instruments. With MyWay, you can access your funds anywhere and anytime. You have the freedom to access your funds for any financial requirement. Read More: How do I utilize my funds?
9. Deposits Fixed Deposit allow only one-time lump sum deposit. For more deposits, one has to open another account, leading to the hustle of handling many accounts. With Mutual Funds, you can invest through lump sums or monthly installments called SIPs (Systematic Investment Plan), and increment these contributions as and when your income increases. Read More: Benefits of SIP
10. Risk Fixed deposits have zero risks this is because the money is locked in the bank. Mutual funds let you invest in various assets or financial instruments (debt, equities, etc) thereby, diversifying the risk. Besides, fund managers rebalance the portfolio on a regular basis and help in reducing the risk. Read More on Fund Categorization
11. Flexibility The sole purpose of a Fixed Deposit is to keep your money safe in the bank and earn fixed returns, more than that of savings account. With Mutual Funds, you have a wide range of options to invest. Right from Gold Funds, Monthly Income Funds, Sectoral Funds, Arbitrage Funds, NFO, etc.
12. Tax- Saving Variants There is a kind of Fixed Deposit known as Tax Saver Fixed Deposit, that have fixed interest rate of 7-7.75%, in which the investor can claim a tax deduction up to 1.5 lakh under Section 80(c) and has a lock-in period of 5 years. With Mutual Funds, MyWay provides top saving ELSS Mutual Funds which can claim a tax deduction up to 1.5 lakh under Section 80(c). They come with a lock-in period of just 3 years and the returns are over 15%. Read More on Tax Saving Mutual Funds.
13. Tax Benefits The returns from Fixed Deposits are taxable according to the tax slab you fall into, regardless of the investment period. Banks also deduct TDS (Tax Deducted at Source) between 10-20%. So the post-tax return is more like 5%-6% Mutual Funds have great Tax Benefits:

  • Tax deductions up to 1.5 lakh under Section 80(c).
  • Long Term Capital Gains (>1 year) from Equity Mutual Funds are tax-free.
  • Short Term Capital Gains (<1 year) from Equity Mutual Funds are taxable at 15%. Read More: Tax Benefits with Mutual Funds.
14. Retirement Fixed Deposits are popular amongst retirees, just because of its convenience and ease of operation. However, the returns are minimal.   With MyWay, you can make better returns (12 – 14%) on your retirement corpus by investing in the National Pension System (NPS). Read More: My Retirement with NPS
15. Inflation cover Fixed Deposits interest rate is between 7 – 8% and the average inflation rate in India is about 4%. It implies that Fixed Deposits don’t actually provide for inflation, making them a risky investment. Mutual Funds let you invest in plans that have provided returns more than 15%, thus helping you beat inflation.

 

Hope this article helped you to understand the differences between Fixed Deposits and Mutual Funds. After all, you have worked hard to receive your income, it only makes sense to make an investment in which the income can work for you.

Don’t Delay! Start investing in Mutual Funds today with MyWay.  

Why Should I start a Recurring Deposit (RD), Is there an Alternative?

RD Deposit

“Never depend on a single income. Make the investment to create a second source.”

– Warren Buffett

The world has become a dynamic place to live. The only constant thing is change. And depending only on a single income becomes very risky when everything around you is moving at a fast pace. It is utmost necessary to make an investment to create a second source of income. Besides, it is a good way of inculcating a habit of regular investments out of your income which would generate a higher return in the future. To aid this process, there are many financial products available in the market and one of them is Recurring Deposits (RD). It is one such instrument that provides more interest than the Savings Bank Accounts and makes you avail the perks of Fixed Deposits (FD) without making lump sum investments. Here are a few pointers which will provide better insights on RD:

What is a Recurring Deposit?

Recurring Deposit is a form of Term Deposit offered by banks which help people with regular incomes to deposit a fixed amount every month and earn interest at the rate similar to Fixed Deposits. It provides customers with an opportunity to build up their savings through regular monthly deposits of a fixed sum over a period of time.

If long term wealth creation is your target, then SIPs in Mutual Funds on MyWay Wealth can be a better option. SIPs are Systematic Investment Plans that allow you to invest a small amount in either debt or equity schemes, based on your risk appetite, on a weekly, monthly or quarterly basis, unlike Recurring Deposits.

Rate of Interest

  • The rate of interest varies from bank to bank but ranges between 5.75% – 8.05%.
  • Senior citizens (above 60 years) are eligible for a higher rate of interest, usually 0.5% more than the other investors.

Since SIPs are market-linked, they tend to earn better returns than RDs. Over the past 10 years, equity Mutual Funds have earned returns between 12-15% or more and Debt Mutual Funds between 8-9% or more, which is more than RDs.

Explore: Top Funds that provide returns >15%

Time Period and the Minimum Amount of Deposit

The minimum period of deposit is 6 months and the maximum period is 10 years. The minimum amount varies from bank to bank. Generally, you can start an RD with INR 500 to INR 1000.

SIPs have no fixed tenure and investors can base it on their flexibility. Nevertheless, the minimum holding period is 6 months. The minimum amount to deposit is the same as RDs.

Who can open a Recurring Deposit Account?

You can open a Recurring Deposit account in a bank in India if:

  • You are an Indian resident
  • Hindu Undivided Family
  • NRIs can open accounts through NRO and NRE accounts.
  • Minors can also open an account under the guardianship of their parents.

Investing in SIPs is simple. All you need is to install MyWay Wealth and complete the 5 min process of KYC – Know Your Customer (KYC completion is mandatory to invest in Mutual Funds) and you get access to the world of Mutual Funds.

Premature Withdrawal

  • You can withdraw your deposits in case of emergency before maturity. The bank may deduct 1% or 2% as a penalty from interest amount accrued on your RD.
  • The minimum deposit period is 3 months and if a depositor withdraws before it, interest will not be given and only the principal amount will be refunded.
  • Partial withdrawal is not allowed.

SIPs offer more liquidity than RDs. Investors can withdraw their funds anytime.

Tax Implications

With effect from 1st June 2015, recurring deposits are subject to TDS as per Income Tax Act, 1961. TDS will be deducted if the total interest income exceeds 10,000 in a financial year.

SIPs in Mutual Funds receive amazing tax benefits. One such Mutual Funds is ELSS – Equity Linked Saving Scheme. With SIPs in ELSS, you can avail tax deduction under Section 80C (up to INR 1.5 lakh) in the EEE format i.e. tax exemption, wealth accumulation, and zero exit load.

Let the numbers do the talking

Suppose, you opened a Recurring Deposit A/c  depositing 4000 per month for a year and let’s assume a rate of interest is 7.05% compounded quarterly. You will receive an amount of 49,861 after the maturity date and the interest earned on the deposit will be 1,861.

The same investment of 4000 per month through SIPs in Mutual Funds, with an interest rate of 14% will yield 51,800 as Maturity amount, thus providing a wealth gain of 3,800.

Hope this article gave you a clear idea regarding Recurring Deposits versus SIPs. Investments in SIPs don’t just provide higher returns but also help you to maintain a healthy savings and investment habit. Choose MyWay Wealth app, India’s most trusted app for Direct Mutual Funds and get access to top categories of Mutual Funds. All this for no commission or fees.

It’s always better to start early, so Start Investing Today.

Why invest in Fixed Deposits when you have better options?

Is FD secure?

“Don’t work for money; make it work for you.”

-Robert Kiyosaki

Income is the most crucial element of any individuals life. And as employees, we want to make sure that we are utilizing our incomes in the most sensible fashion. Usually, people invest their money in various instruments so that they get returns rather than leaving money idle at homes. And one such instrument widely and traditionally known in India is “Fixed Deposits”. Fixed deposit is the safest avenue to park one’s savings especially for people who want to earn a fixed income regularly. However, FDs should largely be viewed as a place to park money with the objective of preserving the capital rather than a means to create long-term wealth.

If long-term wealth creation is your aim, then Mutual Funds should be your option, let’s find out why, with the help of 4Ws and an H!!

What are Fixed Deposits?

Fixed deposits, most popularly known as FDs, are deposits with the bank which earn a fixed rate of return for a specified time duration. At the end of the time period, the amount can be withdrawn along with the interest amount. Read More: Bank Fixed Deposits

Mutual Fund is an investment vehicle that collects money from multiple investors and invests the money, on their behalf, to buy securities. Mutual Funds are managed by professional funds managers who actively work on the portfolio to earn higher returns on the investment.

Why invest in Fixed Deposits?

  • By investing in Fixed Deposits your savings would earn interest anywhere between 4-8%.
  • Though the interest rate varies across banks and tenures, once the deposit has been made the interest rate remains fixed till maturity, thus ensuring fixed returns and protection of invested capital.
  • Banks also provide additional interest to senior citizens. As high as even 8-9% in certain banks.
  • Once you have chosen a maturity period ranging from 7 days to 10 years. So, instead of locking in funds in a 1-year deposit, it can be divided across 1-3-5 year FDs.
  • Tax-saving FD in a scheduled bank is eligible for tax deduction under section 80C. The only drawback of this type of FD is that it has a lock-in period of 5 years and does not allow premature withdrawal.

Mutual Funds:

  • With Mutual Funds, you earn returns more than Fixed Deposits. Last 10 years Equity Mutual Funds have provided returns between 12-15% and more. Taking inflation into consideration (average inflation in India – 6%), Fixed Deposits provide fewer returns, which can be risky. Whereas, Mutual Funds are market-linked and provide inflation-beating returns.
  • Mutual Funds have various categories of funds, from Short term Mutual Funds (<3 years) to long term Mutual funds(> 3-5 years). Explore Top Rated Mutual Funds in Different Categories
  • Mutual Funds have great Tax Benefits:
    • Tax deductions up to 1.5 lakh under Section 80(c).
    • Long Term Capital Gains (>1 year) from Equity Mutual Funds are tax-free.
    • Short Term Capital Gains (<1 year) from Equity Mutual Funds are taxable at 15%. Read More: Save upto Rs 46,800 in taxes in 2019

Who can invest in Fixed Deposits?

  • Any person who is a resident Indian and above the age of 18 years.
  • A minor can open a deposit with the natural guardian operating it.

Same applies to Mutual Funds, you can start investing in Mutual Funds with an amount as small as Rs. 500.

Let’s quickly look at an example:

Mr. Ajay, a Bank Manager retired last month and got Rs.50 lakhs as his retirement benefit. He can do two things with the corpus:

  1. He decides to invest his money in Fixed Deposits so that he could earn fixed returns on it. So, if he invests Rs.50,00,000 for 1 year (compounded yearly) in Fixed Deposits he would receive 53,65,000 i.e he can earn an interest of Rs.3,65,000 at an interest rate of 7.30% p.a.
  2. Instead, He can invest the same amount in Mutual Funds, for an interest rate of 15% and the amount of Rs.50,00,000 will grow to be 57,50,000, which means he earns an interest of Rs.7,50,000

Where and When can I open or close a Fixed Deposit?

One can open/close an FD anytime during the year. It can be opened in any public sector, private sector or co-operative banks. One can also choose the frequency of interest payment (monthly, quarterly, half-yearly or annual) depending on one’s needs. Premature withdrawal of the deposits before maturity is permissible but are subjected to a penalty, meaning a cut on your returns.

How to open a Fixed Deposit?

To open a Fixed Deposit you need:

  • An account with the bank where you wish to open the FD.
  • Fill the application form with ID proof, residential proof, and passport size photos.
  • Once the amount is deposited, an FD receipt is issued.

Alternatively, one can open a Fixed Deposit through internet banking by filling the online form.

But with Mutual Funds, it’s even Simpler!

You can invest in Mutual Funds on MyWay Wealth, with just a few clicks. All you need to do is install the app or log on to MyWay Wealth. Complete the KYC (Know Your Customer) process, which takes less than 5 minutes and is completely paperless, and you get access to a wide range of tailor-made Mutual Funds for zero commission and zero fees. Also, Mutual Funds allow you to withdraw your funds anywhere and anytime, thus providing more flexibility and liquidity.

So why stick to traditional instruments when your money has the potential to earn returns more than Fixed Deposits? Switch to MyWay Wealth Mutual Funds today and begin your journey towards wealth creation.

Your Savings today is your Baby Girl’s Life Jacket

Save for your baby girl

Source: Unsplash

“A daughter is a miracle that never ceases to be miraculous.”

As parents, the greatest gift is said to be children. A daughter is a little princess to her dad and a friend to her mother. Even in movies, the daughter is portrayed as the blessing from God. Be it in Disney’s Mulan who takes her father’s place in war or Anjali in ‘Kuch Kuch Hota Hai’ who fights to carry out her mother’s final wish.

In the past, a girl child was deprived of a good education. Society deemed it necessary only for them to stay at home, cook and clean. However, times have changed. A girl child is free to pursue a good education, hold a job, raise a family and eventually take care of her parents. And this kind of progressive change prompted the Government of India to bring about campaigns that helped parents to provide for the education and welfare of their daughters.

On 2015, Prime Minister Narendra Modi initiated a scheme called ‘Sukanya Samriddhi Yojana’ which translates to “Girl Child Prosperity”. It’s quite an incredible idea to save little by little, with the main objective being to enable each and every family all across India to have an account opened for their daughter. The deposits will pocket a fixed rate of interest ranging from 6%-9% per annum which is adequately protected till the maturity date.

On the very same year, was the launch of the Digital India campaign that brought new dimensions for investments. But how does that help you save for your daughter? Read more to find out.

Now let’s break down 5W’s and 1H of this scheme.

What is this scheme about?

As mentioned before, it is a small savings scheme that allows the parents to save up for their daughter’s future prospects. It takes a minimum deposit of Rs. 250 with a fixed rate of interest accredited to it. When it began, this scheme created an impact for over 76 lakh female children who got over Rs. 3,000 crores deposited in their name.

Who is eligible to take part in this scheme?

The family must be residents of India. The scheme provides it to girls who are 10 years and below. The parents or legal guardians can open the account on behalf of their child. A maximum of two accounts can be opened in a family with two girls. However, there are some exceptions when a third account can be opened i.e. in the case where the first is triple girl babies or if the second is twin girls.

How much do you gain on this scheme?

The scheme is required to give an interest that is 75 points over the 10-year Government bond yield. The current interest rate declared on 1st October 2018 is 8.5% (compounded yearly). Now it all sounds well and good but is that enough?

As promised, how did the digitization help to secure savings for your child? It gave parents easy access to Mutual Funds, where you can save for a specific goal. You earn high returns with a Mutual Fund ranging from 12%-16%, giving your child a large corpus of savings. You can invest in Mutual Funds through MyWay Wealth app. MyWay Wealth has an option called ‘Save for a goal’ under which you can save for your “Child’s education” which invests your savings based on your requirements.

MyWay App

Or, alternatively, you can invest in Children’s Fund (starting with a SIP of as low as Rs 500), that invests in equity or debt oriented schemes with a lock-in of 5 years or until your child attains maturity. You can read more about the Children’s Fund in our children’s day special blog post.

Where can you open an account?

The Sukanya Samriddhi account can be opened in a designated branch of public sector bank or at the post office. The upper limit of deposits is Rs. 1.5 lakh. In case there is a delay or default in payments, then the account gets deactivated. The account can be revived again with a penalty sum of Rs. 50 with the missing payments.

This is all good, but have you thought about your child’s education in case of your untimely death? So MyWay Wealth app can help you find the right term insurance plan which will fetch the right amount of cover for your child’s needs.

A simple 5-steps form is all you need to fill to understand your lifestyle and requirements for a life cover:

MyWay screenshots

After the information is fed, the Smart Recommendation Engine enlists the right term plan(s) to suit your needs.

When does the SSY account mature?

The Sukanya Samriddhi account matures 21 years after it has been opened. When the girl is 18 years of age she can withdraw 50% of the amount. The scheme involves a minimum lock-in period of 8 years within which you cannot withdraw any amount from the account.

In addition, this scheme is based on the Exempted-Exempted-Exempted Model (EEE) which means it is totally exempted from tax.

  • The first ‘E’ is the exemption for the deposits.
  • The second ‘E’ is for the exemption for the interest gained over the period of time.
  • The third ‘E’ is the exemption on the maturity amount.

Give your daughters the freedom to pursue their passion be it education, job or their own business with the best scheme to save early without the trouble of tax imposition. Download the MyWay-Direct Mutual Fund app now and start saving!

Let your daughters be inspired to dream. As the scheme cheers:
“Beti Bachao, Beti Padao!”

FD vs Mutual Funds

In India FDs are one of the most popular choice for investing. But are they the ‘best’ investment option?
Below is a comparison of Fixed deposit vs debt mutual funds.

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Are Fixed Income Securities good options to diversify one’s investments?

A lot of customers investing in Direct Plans of Mutual Funds on MyWay Wealth ask us something along the lines of:

  • What are Fixed Income Securities?
  • What are different types of Fixed Income Securities?
  •  Are Fixed Income Securities something that an investor should consider when diversifying their investments?

So, today I decided to talk about Fixed Income Securities in detail.

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