Difference between Fixed Deposit and Mutual Fund

Now a days many of us investing in mutual fund for tax saving and for long term saving, while some of us keep money in fixed deposits we elaborate some of basic differences in Fixed Deposit (FD) and Mutual Fund Investments

Difference of Fixed Deposit and Mutual Fund
Fixed Deposit
Mutual Fund
Investment for
Fixed deposit investment for Capital Protection
Mutual Fund Investment for grow your Money
Fixed deposit generates fixed return based on type of FD and holding Period.
In Mutual Fund no fixed return, return are based on market fluctuations, and based on type of mutual fund [ Read More].
fixed deposit are not inflation protective rather then they give fixed return which may below inflation rate.
Mutual fund can beat inflation in long time investment and give more return.
As in above said Fixed deposit give fixed return so they have zero risk.
Mutual fund risk is purly depends on the type of mutual fund invested if invested in equity linked then will be more risky as compare to MF that invested in govt. bond and securities.
Tax Benefit
Fixed deposit can give tax benefit but with lock in period if you invested for long time in FD then tax benefit will be available. for short time investment in FD doesn’t give any tax Benefit.
Investment in TAX saving Mutual fund will give Tax Benefit. All mutual Fund are not TAX Saving Mutual fund. For clarification on this you need to talk to your tax adviser.
Interest earned on Fixed Deposit is taxable as per Income Tax Slab Rates.
Based on the Period of holding mutual fund Long term Capital Gain (LTCG) 10% or Short Term Capital Gain (STCG) 15% will be taxable. As of Now Equity fund are also Taxable as per Holding Period.

Also Read : 
10 Type of Income Are Tax Free 

A capital gain is a difference between your purchase value and sale value. For instance, if you have invested Rs 1 lakh in a mutual fund and it is now valued at Rs 1.5 lakh, your capital gain is Rs 50,000. Mutual funds taxation will only apply on this gain, if you sell your units in the fund. There is no tax on unrealized or only accrued gain.

The mutual funds taxation depends on holding period of the fund and what type of fund it is.

Taxation of Mutual Fund Based on type of Mutual Fund
Fund Type
Holding Period for Long Term
Short Term
Long Term
Equity Fund
1 year
Aggressive Hybrid Equity Fund
1 year
Debt Fund
3 years
Slab rate
20% with indexation
International Funds
3 years
Slab rate
20% with indexation

Other Hybrid Funds - If more than 65% of assets in equity, same as equity funds. Otherwise same as debt funds.


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