Why are investors moving away from bank deposits to mutual funds?

Investors today are cautiously shifting away from fixed deposits and other small savings instruments to mutual funds. There is more than one reason behind this trend: increased risk appetite among investors, falling deposit rates and a rise in financial literacy.

Fixed deposits (FDs) traditionally seen as ‘safe bets’ have been the most popular form of investment for generations. But with growing awareness among people, investors are looking at them from a different perspective. While returns on FDs are upfront and well understood, there are certain other aspects of FDs that make them less attractive to mutual funds (MFs).

FDs are not prone to inflation risk. For instance, if the FD you invest in gives you 6-7 percent returns and inflation is 4 percent, the real returns will be 2-3 percent. If inflation moves up to 6 percent, the net returns will be negligible. Also, the returns on FD are not tax-effective. FD returns are taxed at your peak rate of tax. If you are in the 30 percent tax bracket then your 7 percent FD will only yield 4.9 percent return post-tax.


Bank FDs may be suitable for low-risk investors however, one needs to measure returns in post-tax terms only. In comparison to bank FDs, mutual funds are more flexible, liquid and tax-efficient. Unlike FDs, mutual funds tend to benefit from higher inflation whereas, in the case of FD, the losses are evident.

Different tax structure also means there is substantial divergence in post-tax returns. Returns from FDs are classified as interest income while MF returns are categorized as capital gains. Besides tax-effective returns, MFs offer the benefit of diversification which is not possible with bank FDs.

FDs offer limited choice as interest rates are fixed, depending on the investment period chosen which can be anywhere between 7 days and 10 years. With mutual funds, investors have the option of investing across time periods, asset classes and potential returns. Investors willing to take exposure in different categories like equity, debt or gold, depending upon their investment objectives and risk tolerance, can choose mutual funds over FDs as a better alternative.

Quantum Multi Asset Fund of Funds (QMAFOF) invests in three asset classes of equities, debt and gold, thus diversifying risk while still giving appropriate exposure to each asset class. QMAFOF helps rebalance the portfolio at regular intervals based on the performance of underlying assets, relieving the investor from monitoring asset markets.

Reasons why you should opt for QMAFOF over bank FDs
QMAFOF helps you allocate your funds in relatively risky assets with other stable asset classes in a single fund to protect your investment from market volatility. Here are five reasons why you should invest in it.

1. Helps investors reduce market risks and optimize gains by diversifying across asset classes.
2. Gives exposure to various assets in a single investment.
3. Has strong research capabilities across various asset markets.
4. Rebalances portfolio at regular intervals based on the performance of underlying assets, relieving investors from monitoring asset markets.
5. This Fund of Fund has the lowest expense ratios in its category. Thus, making for a cost-effective investment.

Multi-asset funds like QMAFOF can be suitable for investors looking for long term capital appreciation and current income. QMAFOF uses diversification as its strategic approach to give multiple scheme benefits by investing in a single scheme. So whether you want to invest in a balanced fund to limit your downside risk or wondering how to rebalance your portfolio, this can be a good choice to invest in.

Note: The comparison with Fixed Deposits has been given for the purpose of the general information only and not a recommendation to invest. Investments in Quantum Multi Asset Fund of Funds / mutual funds should not be construed as a promise, guarantee on or a forecast of any minimum returns. Unlike fixed deposit with Banks there is no capital protection guarantee or assurance of any return in Quantum Multi Asset Fund of Funds / mutual funds investment. Investment in Quantum Multi Asset Fund of Funds as compared to Fixed Deposits carry moderately high risk, different tax treatment and subject to market risk and any investment decision needs to be taken only after consulting the Tax Consultant or Financial Advisor.

Disclaimer: The views expressed here in this Article / Video are for general information and reading purpose only and do not constitute any guidelines and recommendations on any course of action to be followed by the reader. Quantum AMC / Quantum Mutual Fund is not guaranteeing / offering / communicating any indicative yield on investments made in the scheme(s). The views are not meant to serve as a professional guide / investment advice / intended to be an offer or solicitation for the purchase or sale of any financial product or instrument or mutual fund units for the reader. The Article / Video has been prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable. Whilst no action has been solicited based upon the information provided herein, due care has been taken to ensure that the facts are accurate, and views given are fair and reasonable as on date. Readers of the Article / Video should rely on information/data arising out of their own investigations and advised to seek independent professional advice and arrive at an informed decision before making any investments. None of the Quantum Advisors, Quantum AMC, Quantum Trustee or Quantum Mutual Fund, their Affiliates or Representative shall be liable for any direct, indirect, special, incidental, consequential, punitive or exemplary losses or damages including lost profits arising in any way on account of any action taken basis the data / information / views provided in the Article / video.

Mutual fund investments are subject to market risks read all scheme related documents carefully.