A fixed deposit (FD) entails investing a lump sum for a specified period at a predetermined interest rate, ensuring consistent returns. In contrast, the Monthly Income Scheme (MIS) involves pooling money with an issuer and earning periodic returns. 

 

While FDs are low-risk investments, MIS is ideal for those seeking regular income. However, each option has its pros and cons, and exploring them can aid in deciding the preferable investment in the MIS vs FD dilemma.

Detailed Comparison of MIS vs FD

Here are the key differences between MIS and FD - 

 

Particulars

Monthly Income Scheme (MIS)

Fixed Deposit (FD)

Income Payout

Periodic payouts, offering regular income

Lump-sum return at maturity

Risk Level

Moderate risk, depending on the issuer

Generally low-risk investment

Liquidity

Offers more liquidity with periodic withdrawals

Limited liquidity until maturity, depending on FD type 

Financial Goals

Suitable for those seeking regular income

Suitable for capital preservation and stable returns

Interest Rates

Returns may vary; influenced by market conditions

Fixed interest rate throughout the tenor

Investment Tenor

Flexible tenors available

Fixed tenor chosen at the time of investment

Tax Implications

Taxed based on the income earned.

Taxed on crossing interest threshold; Not applicable to tax-saver FDs 

Important Factors to Consider When Investing in MIS or FD

Investors should carefully consider several factors when choosing between MIS and FD to align their investment strategy with financial goals.

Risk Tolerance and Return on Investment

Evaluate your risk tolerance before choosing between an FD and MIS. FDs are generally low-risk with fixed returns, suitable for conservative investors. MIS, on the other hand, carries market-related risks but offers the potential for higher returns.

Investment Horizon and Liquidity Needs

Consider your investment horizon and liquidity requirements. FDs often have fixed tenors and penalties for premature withdrawals, making them suitable for short to medium-term goals. MIS, with its potential for long-term gains, is more suitable for investors with a longer time horizon who can navigate market fluctuations.

Inflation Hedge and Diversification

Assess whether your chosen investment can effectively combat inflation. FD returns may not always outpace inflation, while MIS, with its market exposure, has the potential to provide returns that exceed inflation rates. Additionally, consider diversification—FDs lack the diversification benefits that MIS can offer across various asset classes.

Tax Implications

Understand the tax implications of your investment choices. Interest income from FDs is taxable, and investors should factor in post-tax returns. For MIS, the tax treatment varies, and some gains may be subject to capital gains tax. Consider the overall tax impact on your returns.

Financial Goals

Align your investment choice with your financial goals. If stability and capital protection are priorities, FDs may be more suitable. For investors seeking a balance between returns and periodic income, MIS could be considered.

Deciding between MIS and FD hinges on individual financial situations and goals. Some opt for a balanced approach, combining both to manage risk and returns effectively. Regardless of the choice, Bajaj Markets provides a seamless online process, enabling easy FD bookings and more in just a few clicks.

Frequently Asked Questions

How do risk levels compare between MIS and FD?

The risk levels differ between Monthly Income Scheme (MIS) and Fixed Deposits (FD). FDs are considered lower risk, offering fixed returns. MIS may involve slightly higher risk due to market fluctuations affecting income distributions.

 

What factors should I consider when choosing between MIS and FD?

Consider factors like financial goals, risk tolerance, liquidity needs, and investment tenor to align with your preferences and objectives.

 

Can I expect guaranteed returns from both MIS and FD?

Yes, both Monthly Income Scheme (MIS) and Fixed Deposits (FD) typically offer guaranteed returns. FDs provide a fixed interest rate, while MIS assures a fixed monthly payout, making them relatively stable investment options.

 

Are there tax implications for MIS and FD?

Yes, both Monthly Income Scheme (MIS) and Fixed Deposits (FD) have tax implications. Interest earned from FDs is taxable as per the individual's income slab. In MIS, the interest is also taxable, but the principal amount is not.

 

How does liquidity differ between MIS and FD?

FDs often have limited liquidity until maturity, with tax-saver FDs having a lock-in period of 5 years. Meanwhile, MIS may offer more flexibility with periodic withdrawals.

 

Can I combine both MIS and FD in my investment portfolio?

Yes, a balanced approach may involve combining both for a diversified investment strategy, managing risk and returns effectively.

 

What happens if I need to withdraw funds prematurely from MIS or FD?

Early withdrawals may result in penalties. In case of FDs, you'll receive interest earned up to the withdrawal date.

 

Home
active_tab
Loan Offer
active_tab
Download App
active_tab
CIBIL Score
active_tab