Saturday, January 12, 2008

FD verses Mutual Funds

Near double digit returns on FDs that have been available for sometime now are soon being phased out. Even a pure debt mutual fund will find it difficult to compete with such returns. So if your primary concern is capital protection with an assured return then stick to a FD. However the obvious problem with FDs is their illiquid nature. But today the processes at banks are such that breaking an FD doesn't take much time and effort. As to your search for a good mutual fund goes, there is an inherent flaw in your comparison between an FD and a mutual fund. For one thing, mutual funds do not guarantee safety of capital and neither do they offer assured returns. At best you can pick a mutual fund that invests in highly secure instruments such as government bonds, but even on these investments you can expect a negative return over a very short term of a month or so.

As far as costs are concerned there isn't any difference between approaching the mutual fund company directly and going through an agent.

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