- Date : 11/03/2023
- Read: 3 mins
Which investment option would be more suitable for investors -- fixed deposits or money market funds? Read to know more.
The suitability of fixed deposits or money market funds for investors depends on their investment goals, risk tolerance, and financial situation. On the one hand, fixed deposits offer stable returns with a low level of risk, making them a suitable option for conservative investors. On the other hand, money market funds may offer relatively higher returns and a low-to-moderate level of risk, making them a good alternative for investors looking for better returns than fixed deposits. Should you take the safe route with a fixed deposit or opt for the riskier money market funds? Both have their own advantages and disadvantages. Hence, it can be difficult to decide which is better suited to your individual investment goals. In this article, we will examine both fixed deposits and money market funds to enable investors to take informed decisions. This article has the following sections for ease of understanding:
- Understanding fixed deposits and money market funds
- Returns from money market funds and dixed deposits
Understanding Fixed Deposits and Money Market Funds
Fixed deposits, also known as term deposits or time deposits, are a type of investment offered by banks and non-banking financial companies. They are considered to be the safest investment option available and involve depositing a lump sum for a predetermined period.
Money market funds aim to provide investors with high liquidity and good returns in the short term by investing in a range of money market instruments. These funds have an average maturity of one year and strive to maintain a stable net asset value by minimising fluctuations. Money market funds generate interest income while preserving the liquidity of the fund.
Also Read: About market insights
Returns from Money Market Funds and Fixed Deposits
Table 1: Returns from the top 5 money market funds (in the last 1 year)
(Source: https://www.etmoney.com/mutual-funds/debt/money-market/58, as of 17/02/2023)
Given above are the top 5 money market funds (as per ETMONEY.COM), giving an average return of 6.04% per annum in the last year.
Table 2: Annualised yields for top banks on deposits upto 1 year
(Source: Websites of individual banks, as of 17 February 2023)
In Table 2 presented above, annualised yields per annum of top Indian banks (both public and private sector) have been taken from the respective bank sites. It’s worth mentioning that different banks have fixed deposits with different maturities. Here is the maturity annualised yield of tenure that’s nearest to less than one year.
As is evident from the above table (Table 2), annualised yield per annum for senior citizens is higher than the annualised yield per annum for the general public.
As is evident from Tables 1 and 2 presented above, there isn’t much difference in annualised yields per annum between fixed deposits and money market funds. Senior citizens have a slight edge in investing in fixed deposits, whereas the general public has a slight edge in investing in money market funds.
Also Read: About investments
The annualised yields per annum for both fixed deposits and money market funds are similar. Senior citizens having a slight edge in investing in fixed deposits and the general public having a slight edge in investing in money market funds. Ultimately, the choice between the two should be based on the investor's individual needs and financial goals.
Disclaimer: This article is intended for general information purposes only and should not be construed as investment or legal advice. You should separately obtain independent advice when making decisions in these areas.
The suitability of fixed deposits or money market funds for investors depends on their investment goals, risk tolerance, and financial situation. On the one hand, fixed deposits offer stable returns with a low level of risk, making them a suitable option for conservative investors. On the other hand, money market funds may offer relatively higher returns and a low-to-moderate level of risk, making them a good alternative for investors looking for better returns than fixed deposits. Should you take the safe route with a fixed deposit or opt for the riskier money market funds? Both have their own advantages and disadvantages. Hence, it can be difficult to decide which is better suited to your individual investment goals. In this article, we will examine both fixed deposits and money market funds to enable investors to take informed decisions. This article has the following sections for ease of understanding:
- Understanding fixed deposits and money market funds
- Returns from money market funds and dixed deposits
Understanding Fixed Deposits and Money Market Funds
Fixed deposits, also known as term deposits or time deposits, are a type of investment offered by banks and non-banking financial companies. They are considered to be the safest investment option available and involve depositing a lump sum for a predetermined period.
Money market funds aim to provide investors with high liquidity and good returns in the short term by investing in a range of money market instruments. These funds have an average maturity of one year and strive to maintain a stable net asset value by minimising fluctuations. Money market funds generate interest income while preserving the liquidity of the fund.
Also Read: About market insights
Returns from Money Market Funds and Fixed Deposits
Table 1: Returns from the top 5 money market funds (in the last 1 year)
(Source: https://www.etmoney.com/mutual-funds/debt/money-market/58, as of 17/02/2023)
Given above are the top 5 money market funds (as per ETMONEY.COM), giving an average return of 6.04% per annum in the last year.
Table 2: Annualised yields for top banks on deposits upto 1 year
(Source: Websites of individual banks, as of 17 February 2023)
In Table 2 presented above, annualised yields per annum of top Indian banks (both public and private sector) have been taken from the respective bank sites. It’s worth mentioning that different banks have fixed deposits with different maturities. Here is the maturity annualised yield of tenure that’s nearest to less than one year.
As is evident from the above table (Table 2), annualised yield per annum for senior citizens is higher than the annualised yield per annum for the general public.
As is evident from Tables 1 and 2 presented above, there isn’t much difference in annualised yields per annum between fixed deposits and money market funds. Senior citizens have a slight edge in investing in fixed deposits, whereas the general public has a slight edge in investing in money market funds.
Also Read: About investments
The annualised yields per annum for both fixed deposits and money market funds are similar. Senior citizens having a slight edge in investing in fixed deposits and the general public having a slight edge in investing in money market funds. Ultimately, the choice between the two should be based on the investor's individual needs and financial goals.
Disclaimer: This article is intended for general information purposes only and should not be construed as investment or legal advice. You should separately obtain independent advice when making decisions in these areas.
