While looking through various investment options, people can choose to park their money in a savings account. A bank is a financial institution that considers deposits from the public and generates credits. People keep their hard-earned money in the bank and the bank provides them with credits in return. There are various forms of investments such as mutual funds and bank deposits by which a money holder can invest in the banks.
What is a Mutual Fund?
Mutual Fund is a common term that we hear in our daily lives. The term might be familiar to us, but the actual meaning might be somewhat tricky to understand. A mutual fund can be essentially termed as a form of stock brokerage. It is a type of financial vehicle made up of a pool of money collected from various investors to invest in securities like stocks, bonds, money markets, and other assets. They are usually operated by professional money managers who allocate the funds and assets called the fund managers. Though they give better returns when compared to other forms of investments, returns are somewhat volatile as the whole system is directly dependent on the economic condition of the country and might fluctuate when the economy hits severe depression. There are various mutual funds available in the market such as UTI mutual fund, L&T mutual fund, etc.
What are Bank deposits?
Bank deposits can be termed as the money placed into banking institutions for safekeeping. It is one of the most popular forms of investment with a good reason. The high-interest rates and minimum risk factor ensure that the money is in safe hands. Even if the bank goes broke, the money is insured by the government and will get back. In this system, the banks provide the money holder with the right to withdraw the deposit at any time though there are certain terms and conditions set forth by the bank regarding the withdrawal procedure.
Which one is better?
When it comes to monetary investments, everyone is very cautious and always does a background check before investing. In that case, certain questions come to mind, Where to deposit? How to get the best interest rates? Which bank is offering the highest interest rate? Considering such questions, Mutual Fund investments and Bank Deposits are a good option. But which one is better? Here is through comparison of both which might help you to consider which one is better out of the two.
How to invest?
You don’t need to think much about how to invest in mutual funds. Investment in Mutual Funds is very simple but divided into two processes, either, directly or through any broker/mutual fund distributor/financial advisor. Any medium of investment can be chosen either online or offline. You can also go to the distributor’s office or directly to the mutual fund company. PAN Number and KYC are the basic documents required to invest in mutual funds. You can find the best mutual funds in India easily online.
For Bank Deposits, you can go to the bank and choose anyone from the various types of bank deposits ( current account, savings account, and fixed deposit).
Most people visit the banks when they want to open an account or want to invest in the fixed deposit, but currently, many banks are also offering bank deposits online.
Level of Simplicity and accessibility
Mutual funds are very simple to understand and invest in. A person does not need to have any prior knowledge in Economics or Financial Statements or Financial Markets in order to be an investor. You can invest in any Mutual Fund schemes provided by any company without having any prior ties with the company. Automatic Deposit, Systematic withdrawal are some of the key features which add more to its simplicity and accessibility.
Bank Deposits are somewhat simple, but the money holder needs to have a bank account with a particular bank in order to get access to the schemes provided by them. Which at times gets very difficult for a person, as it is not possible to have accounts in all the banks.
Risk of Market Fluctuation
Mutual Funds are totally subjected to the market and its changes as the returns are quite volatile. There are times when based on the market, the account value may rise up to 20% from what the actual value was. Sometimes the value might go down by 50% from the original value based on the market.
This is a major positive as well as a negative aspect of bank deposit. Positively speaking, the interest rates do not fluctuate in accordance with the rise or fall of the market value. But in negative terms, the fixed rates are sometimes very low in accordance with the market value of that time and you will not benefit as your interest rate is fixed.
Safety of the Amount Deposited
In modern times various mutual fund companies are coming up with attractive schemes and more and more investors are investing in it as the whole arrangement is based on the market value with no government insurance. During the time of great depression, you may lose your money as well as the interest because there are high chances for the brokerage house to get bankrupted.
Whereas when you invest in the various bank deposits, your money is guaranteed to be safe and secure. The government insures bank deposits. Further, because the interest rates do not fluctuate in accordance with the market value, there is no such possibility of the interest rate promised to you by the bank to get altered.
With time as the banking system is changing, the investment pattern followed by every person is also changing. Modern-day banks are providing many new schemes. New companies are also emerging with various Mutual Fund deposit schemes. In India, many including the SBI Small Cap fund are turning out to be the most prominent among others. Though the mutual fund system is termed as modern and new, providing a wide array of facilities that are eye-catching as well as simple at the same time. It is the bank deposit system which is still the best choice for many.