GUIDESMUTUAL FUNDS
Mutual Funds vs Recurring Deposits - Where Should You Invest?
14 MIN • 
LAST EDITED BY PRANAV KARNAD ON AUGUST 1, 2025.
LAST EDITED BY PRANAV KARNAD ON AUGUST 1, 2025.
GUIDES LAST EDITED BY PRANAV KARNAD ON AUGUST 1, 2025.
A mutual fund is an investment plan where an investor can invest money regularly in a scheme as per their choice — which can be monthly, quarterly or weekly, known as a SIP. An ECS mandate can be set up via your mutual fund app. The deduction date varies from the platform, and an investor may be presented with various options.
Depending on your chosen date and frequency, the amount selected will be deducted from your bank account unless you cancel your SIP.
In a recurring deposit scheme, you must select a term and a monthly deposit amount. As soon as the plan begins, you must deposit the cash each month for the length of the plan. You may generally select a length between six months to 10 years. Recurring deposits are convenient for your wallet since you can choose the frequency, and the risk is low.
For instance, if you start a recurring deposit by investing ₹1000 per month for 10 years, then every month, ₹1000 must be deposited in the scheme. It's very similar to JARS that the Fi Money app offers. However, with JARS, there are many advantages — you can deposit anytime you wish + any amount you want to (even ₹1), set different goals on the app and deposit accordingly.
A fund collectively accumulates money from several investors and then invests the proceeds in several asset classes like bonds, equities, and money market instruments. Such a collective investment vehicle is known as a mutual fund. The fund is managed by a fund manager with relevant industry experience and invests on your behalf. In India, mutual funds are established as a trust and governed by SEBI, and mutual funds work under regulations laid out by SEBI (Mutual Funds) Regulations, 1996.
The most effective way to generate wealth is to set aside a predetermined monthly amount for savings or investments. Mutual funds and recurring deposits are the two most frequent ways of investing a set amount each month.
As a money management platform, Fi offers several investment options. Short-term or Long-term — investing with a simple swipe of your phone's screen is easy. Mutual Fund investments on Fi are commission-free. With its intuitive user interface, suited for novice & seasoned investors, you can select from over 900 direct Mutual Funds.
When comparing fixed deposits vs recurring deposits vs mutual funds — fixed deposits and recurring deposit investments are low-risk & safe. Mutual funds have a moderate-to-high level of risk. The stock market or debt instruments decide the returns for mutual funds.
The recurring deposit and its interest are taxable. Because interest income is taxed, TDS is levied on recurring deposit returns. The returns must be revealed in the Income Tax Return (ITR) on an accrual, i.e., once a year. The investor's interest income is added to their ordinary income and taxed at the standard rates.
The interest rate varies across schemes. Additionally, the interest rate is directly correlated to risk. Recurring deposits have a lower interest rate. However, it is fixed, and hence there is no risk. While mutual funds have a varying interest rate higher than a fixed deposit rate, it also comes with risks.
The fixed deposit appears to provide better returns. This is because the account holder deposits monthly in a recurring deposit, and thus the interest is calculated accordingly. The fixed deposit amount is often placed once and is a lump payment that receives a higher interest rate. Therefore, fixed deposits are more profitable.
Some potential disadvantages of a recurring deposit include lower interest rates, fixed monthly commitment, limited liquidity, inflation risk and significant opportunity cost. Considering these disadvantages and evaluating your financial goals and risk appetite is essential before choosing a recurring deposit as an investment option.
