Mutual Fund vs Fixed Deposit
Over the last 5 years, Fixed Deposits have given around 6.5% return after taking tax into consideration.
Equity & Debt Mutual Funds have given fantastic returns of around 20% and 14% respectively for similar time period.
In Fixed Deposits, you have to pay up to 30% tax on the interest earned.
On the other hand, you are exempted to pay tax if you stay invested in Equity Mutual Funds for more than 1 year. On Debt funds, there are multiple tax benefits if you stay invested for more than 3 years.
Mutual Funds also help us beat inflation.
Inflation measures how cheap/expensive goods and services have become. Average last 5 years inflation rate has been around 7% (higher than Fixed Deposit returns).
This simply means that if price of a commodity 5 years ago was Rs100, its price would have increased to Rs140 now.
This clearly shows that fixed deposits are not actually helping in building your wealth but merely able to meet the inflation demand.
Still thinking why to invest into mutual funds? Wondering how much money you need to start investing? Our next section will try to answer these questions for you.