A fixed deposit is an investment tool where you invest your lump sum amount for a fixed tenor and at a predetermined interest rate. You get your earnings based on your payout mode, and these returns are not affected by market volatility.
On the other hand, a Monthly Income Scheme (MIS) is an instrument where you pool the money with an issuer and then earn returns on it. The main difference when comparing the MIS vs FD instruments is that you can get the returns you earn periodically. This feature of regular payouts is ideal if you are looking for a regular source of income.
However, no matter what financial investment tool you favour in the MIS vs FD debate, both have their pros and cons. Read on for insights to help determine the ideal investment in the MIS vs FD dilemma.
To answer the question, ‘MIS or FD, Which is better?’, you should know all you can about the instruments. They are designed to serve varying needs, and deciding which investment option among the two requires you to consider a few important factors.
Here is a brief comparison to help you get answers to the MIS vs FD question.
A fixed deposit is a reliable financial instrument that offers assured interest earnings at a predetermined rate of interest. This interest rate is fixed when you book the FD and remains unchanged all through the tenor.
Note that FD interest rates will vary based on the FD tenor and a few other factors. To ensure that you get the best interest rates, you can use a fixed deposit calculator and estimate your returns before investing.
A fixed deposit is an ideal investment tool to be included in your financial portfolio as it can be assured of returns, and this can help inject stability into your portfolio.
Contrary to an FD, some monthly income schemes invest in equity securities or company shares. So, there is no surety on the returns earned through an MIS. Hence, you cannot assess your profits while investing in a MIS.
On comparing MIS vs FD, a fixed deposit has lower risk. The risk involved in an MIS is comparatively higher as the returns vary with market fluctuations. A fixed deposit is unaffected by any market fluctuations and you will get assured interest income as per your payout mode.
A main beneficial feature of an MIS is that you can also expect higher returns based on how the equities perform. If the equities invested in perform well, you can expect to earn significantly higher than with the FD. However, the opposite is also true as the stock market is volatile.
With fixed deposits, the risk factor is almost negligible and so your returns are fixed. However, in a monthly income scheme, the risk is higher as equity is also involved.
In an FD, your interest earnings are constant as the interest rate is fixed. However, in an MIS, the returns are not consistent over a specific period. The main reason for this is the market’s volatility.
Investing in an MIS is the perfect choice for you if you can handle risks and have adjusted your portfolio accordingly. However, if you want surety in your returns, a fixed deposit is the best choice.
A fixed deposit locks your corpus for a fixed tenor at a predetermined interest rate set by the issuer. While you can withdraw funds only after the maturity, there is an option to liquidate the FD by paying the penalty.
The penalty charge varies from one financial institution to another. In a MIS, a penalty of approximately 1-3% is applicable if you withdraw your amount before maturity, depending on the issuer.
To answer the ‘Post Office MIS vs FD’ debate, compared to other MIS, the Post Office Monthly Income Scheme is associated with low risk and fixed Post Office MIS interest rate. This is because it is backed by the sovereign guarantee of Indian Postal Services.
The Post Office MIS interest rate is fixed, meaning you get assured returns. However, you cannot withdraw your amount before 12 months of starting the investment. While a fixed deposit is open to all individuals including NRIs, a POMIS account is not eligible for NRIs.
A fixed deposit offers great liquidity and flexible payout options. You can withdraw your invested amount anytime by paying a small penalty in a fixed deposit. In a POMIS, there is a lock-in period of 5 years, whereas you can select a suitable tenor in FD.
While there is a restriction on the maximum amount to be invested in POMIS, the maximum limit for an FD depends on the issuer and can go up to crores.
A monthly income scheme or MIS is the perfect investment choice if you can handle risks and have some experience with the stock market. There is a lot of potential to earn significant profits but there is no guarantee of these returns.
Moreover, in MIS, there may be fluctuations in your payouts if you go in for a premature withdrawal. On the flip side, a fixed deposit assures secured returns at fixed interest rates. This way, your payouts are regular and not affected by changing market conditions.
There is an option to withdraw your money as and when required and still get returns up to the time of withdrawal. However, you may need to pay a small penalty as fixed by the issuer.
So, if you want a guaranteed income in a low-risk environment with flexible payout options, a fixed deposit is a better investment option for you.
To invest wisely and with ease, find a favourable issuer and instrument on Bajaj Markets. Get attractive interest rates and start your journey online. With a simple and minimal documentation process, you can invest your money right from the comfort of your home.
Fixed Deposit and Other Investment Comparisons
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A monthly income scheme or MIS is a financial tool where you first pool your money with an issuer and then get monthly returns on it.
A fixed deposit has almost negligible risks, whereas MIS is a high-risk investment option. This is mainly because most of the monthly income schemes also invest in equities. Therefore, if the equities do not perform well, your returns do get affected.
On the contrary, a fixed deposit is unaffected by market fluctuations and you will get guaranteed returns.
The earnings from a fixed deposit depend on the issuer’s interest rate for a specific tenor. Usually, longer tenor FDs have a higher interest rate. Most financial institutions also offer higher FD interest rates for senior citizens.
In a fixed deposit, you get the assured interest income at the time of maturity depending on the payout mode you choose. In a monthly income scheme or MIS investing in equities, your returns aren’t guaranteed.
A monthly income scheme can give you higher returns than expected but there is always a high risk involved. So, the returns might vary depending on market fluctuations.
If you withdraw your money from FD or MIS prematurely, you will have to pay a penalty. However, in a fixed deposit, you will also receive interest earned up to the date when the FD withdrawal is made.