InvestorQ : Which is better between the mutual funds and the Bank interest?
Radhika Arya made post

Which is better between the mutual funds and the Bank interest?

Shivali Sharma answered.
2 years ago

The main purpose of investment is to receive more than what you invest and that differential amount shall be such that it feels rewarding. But one thing that is sure about investment is that, if you want more reward you will have to bear more risk since profit is the reward for risk-taking. Let us understand both the investments in detail:

Bank interest/Fixed Deposits: The biggest advantage of investing with your bank is that there is a negligible risk or no risk at all. Interest rates vary from 3-7% generally for saving bank interest and fixed deposits. Lock-in-period shall be as decided by the investor. However, the biggest disadvantage of investing in Fixed deposits or saving bank accounts is that you do not get the benefit of compounding, this means that you do not earn interest over the interest you earn during all your investing period. This type of investment is suitable when you have some necessary obligations to meet and you want to keep aside some fixed amount so that it could be easily available to you when you need it.

Mutual Fund: The biggest advantage this fund has is that you get the benefit of compounding, which means you earn on your interest earned as well. If you consider rates, they are also attractive as it ranges between 5-8% generally and sometimes go higher as well. However, the disadvantage of a mutual fund is that there is no surety that you will get your principal back and returns may vary since the average returns are expected returns and are calculated on the basis of past data. So, if you are okay with bearing some risk, then the mutual fund can be a great investment option for you.

However, you can also bifurcate in both the options such that, if you need some fixed money on which you can not take the risk, invest that in bank FDs or saving bank account and for the remaining amount, you can opt to take a little risk and invest in mutual funds. Try to begin with a small amount and also gain some understanding of how mutual fund investment works.

Happy Investing!