There are several ways in which you can make use of the surplus funds. However, to benefit from the funds for a long run, it is essential that you allocate the funds in the right place. For most of the people, savings can be a good option wherein they can park their funds, whereas, for others, investing in a fixed deposit is a much better option.

Many times people are posed with a question – where to invest their surplus funds? The answer to this question can differ from person to person depending on his/her choices. If you listen to the experts, many experts will suggest you to make an investment of your hard earned money. When investments are talked about, many people often hesitate as it can be risky. But not every investment option is a risky one; you can go for investing in a fixed deposit (FD) as it is considered a safe investment option. Also, fixed deposit is the most preferred option in India, when it comes

From the time we start earning, we are very much concerned about our future regarding the financial situations. This concern for a secured financial future increases the urge to multiply our income. One of the basic things we do to keep our money safe is by keeping it in the savings accounts. But if you think about it, how would idle money benefits you apart from its liquidated use?

Savings accounts can be used to accumulate funds if you are planning to buy things like electronic appliances or a vehicle, but using it as a long term investment will not gain you much benefits. If you are planning for a financially secured future, you can consider other investment options like Fixed Deposits or Mutual funds. It might be hard to make up your mind for investment while keeping your money safe in the savings account, as you can gain 6 percent on the amount deposited from a savings account too.

Why Investments and not Savings?

If you are a kind of person who likes to earn higher returns, than the investment is the right option for you. That it because investing your funds can earn you higher returns as compared to that of savings. As mentioned above, fixed deposit is an investment option which involves less risk. Moreover, the interest rate in fixed deposit does not depend upon the market conditions, which makes it safe to invest in. Interest rates which depend upon the market conditions often fluctuate which makes them risky.

How to Invest?

A savings account is both common and essential in today’s time, so we know how and where to apply for it. To invest in liquid mutual funds, you can take the help of stockbrokers and financial institutions who will provide you with necessary information and guidance for investment. Fixed Deposit accounts can be opened with the financial institutions, but you have to keep the interest rate in mind while investing.

What is a Savings Account?

A savings account is a provision offered by the banks which can be used for saving money and keeping it secure. Typically, savings for a rainy day is the primary reason for opening a savings account. A savings account is not an investment source, but you can get up to 3 percent interest on the amount deposited every year.

Shortcomings of a Savings Account

A savings account is just a depository provision offered by the banks and can only be used for depositing and withdrawal of money. Although the banks offer 3 percent interest rate on savings account, due to the rising inflation the 3 percent interest offered might not be very beneficial.

As you keep depositing money in the savings account, it might get accumulated to a limit where it might be ideal to use for a sound investment. If you are looking for risk averse options for investments, you can opt for Fixed Deposits.

Fixed Deposit Scheme: FDs or Fixed Deposits are the safest investment plans where you invest a lump sum amount for a specified period of time and at a fixed rate of interest. The FD interest rates can range between 6.5-8% depending on the financial institution. Fixed Deposits are hugely popular amongst citizens for investments since they bear no risks at all. The investment is completely safe and the returns are not subject to market risks or fluctuations. Fixed Deposits grow your money steadily without any fluctuations. You can also invest in tax-saving fixed deposits that have fixed lock-in periods. You can also get loans against your Fixed Deposits in times of emergency without having to break the same.

Fixed Deposit Interest Rate: The interest rate is the most important factor when it comes to investments. As the interest that you earn over your fixed deposit determines your profit. It is also important to know that the interest you earn over your fixed deposit varies from each financial institution. You might come across a lender who offers you a high rate of interest whereas another offering you a low-interest rate on the same amount. Hence, comparing the rate of interest offered on FD is essential.

The interest offered on FD investment is fixed and does not tend to change over the period. There are not only banks which offer you with fixed deposit investment, but Non-Banking Financial Companies (NBFCs) as well. As the Reserve Bank of India (RBI) has cut down the repo rates which has initially lowered the interest rate on fixed deposits, many new investors are posed with a question whether to invest in fixed deposits or not. In such a situation, you can invest in NBFCs fixed deposits as they still offer you with higher returns than banks and are also flexible regarding credit scores.

Overdraft Facility: When it comes to fixed deposits, interest is not the only thing which you can benefit from. You can also benefit from an overdraft facility. As fixed deposit restricts fund withdrawal, the investor is only left with an option of breaking the FD. In case if you break the FD, the lender will charge you a penalty as well as you will be offered a low rate of interest if you plan to reinvest in fixed deposit. To avoid such a situation, you can use the overdraft facility. In an overdraft facility, you can withdraw up to 90% of the amount from your FD account. You also have to pay interest on the amount you had previously withdrawn.

We can conclude by saying that investing in a FD is much more beneficial than parking your funds in a savings account. Besides a higher rate of interest, there are many other things from which you can benefit when it comes to fixed deposit investment.

Mutual Funds: It’s usually refer to a pool of investments which are handled by a professional fund manager and invest in various market instruments. Mutual Funds also promise good returns and these can be tax free in many cases as well. However, they are also subject to market fluctuations and risks and this makes them avoidable for those who desire a completely secure growth path for their money.

Investing in Mutual Funds is becoming an increasingly popular investment option in India. With interest rates on fixed deposits steadily decreasing, many people are trying to find investment options that will give them an increased chance of getting good returns for their money.

What is Mutual Fund?

Mutual Funds are investment vehicles where a collective pool of funds is utilised for market investments.

Money invested by a large number of people is gathered together in a common pool. A fund manager then uses the money in this pool to create a diversified portfolio of investment options that suits the specified goals of the MF scheme.

Beginner’s Guide to Investing in Mutual Funds

So, you are considering investing in Mutual Funds. However, you are new to the game and do not understand the jargon or the way these investments work. So, let us focus on Understanding Mutual Funds, so that you can have a stepping stone to a diverse investment portfolio.

Mutual Funds- Basics of investments

Mutual fund schemes are broadly divided into two main categories – Open Ended and Close Ended Funds.

Mutual Fund Categories

All mutual fund schemes invite investors through a New Fund Offer (NFO). Investors can buy units in that fund during this period of NFO. After the NFO period ends, open ended and close ended funds operate in different ways

Open Ended Funds

In these types of Mutual Funds, investors can sell and buy units whenever they want. Units are bought and sold by the company as well. The scheme’s corpus thus change accordingly. The scheme can offer new units for sale or buy back units from investors. Open Ended MF schemes also have no definite maturity dates.

Close Ended Funds

Investors can buy units directly from these funds only during the NFO period. After this, no one can enter or exit the funds. However, close ended funds are listed on the stock exchange and you can buy or sell units in the secondary market. The corpus of the close ended funds never varies. Only existing units can be offered for sale in the secondary market.

Which is Better for Investment?

To clarify your mind about all the confusion before making any investment, you need to compare among the three sources i.e. savings account, fixed deposit and Liquid mutual fund. You can compare them on the following points:

  1. Liquidity: A person coming from a middle-class background might face many financial issues which would make him regret his investment. Hence, it is important that you choose an investment source according to your needs and financial investment. Savings accounts have better liquidity as it is fully disposable for the use of the account holder. The account holder can withdraw the money deposited according to his or her convenience with minor formalities and no extra charges. Liquid mutual funds have lower maturity period which makes it a favourable option for an investor to invest in it, which means in times of emergency the investor will be able to get funds easily with some profit added to the withdrawn amount. When liquidating mutual funds, you can get your invested money within two working days. On the other hand, it can be made useful if the investor chooses to invest in the non-cumulative FDs. Due to a minimum tenure of 1 year, it is advisable that you do not withdraw your money before the maturity period to avoid penalties and unnecessary charges.
  2. Returns: Investments can only be beneficial if the investor gains returns which would increase his accumulated wealth. The savings account offers 6 percent interest rate annually on the amount deposited in the banks. Mutual Fund returns are risky, and the return proportion can fluctuate due to the market conditions. When it comes to returns, fixed deposits can be one of the ideal forms of investment sources in the market. FDs are not affected by the changes in the market and give guaranteed returns. The returns on FDs are gained according to the interest rates applied on the Fixed Deposit.
  3. Investment Security: It would be disheartening to lose your investment in the first try. Since Savings accounts can be beneficial only for wealth accumulation, it can be a safer option regarding investment security. According to investors mutual funds are one of fastest ways to multiply your wealth, but it is also risky for investment. Since Mutual fund investments are dependent on the market conditions for returns, any fluctuation in the market would make you lose your invested capital. For better returns and investment security, you can invest in fixed deposit. Fixed deposits investments are not exposed to any form of external investment. Hence, the invested amount becomes the responsibility of the financial institutions. Hence, FDs provide better investment security.

A Savings account can be beneficial for wealth accumulation, but the benefit gained from the savings account might not make much of a difference. You need to consider other options like FDs and mutual funds for wealth multiplication.

By Eddy

Eddy is the editorial columnist in Business Fundas, and oversees partner relationships. He posts articles of partners on various topics related to strategy, marketing, supply chain, technology management, social media, e-business, finance, economics and operations management. The articles posted are copyrighted under a Creative Commons unported license 4.0. To contact him, please direct your emails to

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