Fixed deposits have been a sought-after investment tool among all investors. This investment option fetches high interest and is considered to have low-risk. However, if you already have a fixed deposit in your investment portfolio and want to explore other options or if you are bothered by the declining Fixed Deposit rates in recent times, fixed maturity plans can be your solution. Fixed maturity plans are close-ended debt mutual funds that have a fixed lock-in period. 

You deposit your capital under any of the two plans. The capital stays invested for a preset tenure and accumulates interest. You receive your capital and the accumulated interest at maturity. Hence, the basic concept of fixed deposits and fixed maturity plans is more or less the same. Nonetheless, they have many dissimilarities in their features and characteristics. 

Fixed deposits vs fixed maturity plans: which is better?

To help you in choosing the best one, here goes a list of differences between fixed deposits and fixed maturity plans.

Flexibility in investment

You can invest in any fixed deposit whenever you want. You can visit the branch of your preferred fixed deposit provider or simply go to their official website. Online or offline, you can complete the formalities and get your deposits fixed within a few minutes. Furthermore, you can opt for a tenure starting from 7 days and up to 10 years.

Coming to fixed maturity plans, they do not offer as much flexibility as fixed deposits. You can invest in this plan only when any asset management company makes new fund offers or NFO. The tenure of this plan starts at 3 years and goes up to seven years.

Risk factors

One of the key features that attract investors most towards FD is the low risk factors associated with it. Fixed deposits offer assured returns. At maturity, you get back the principal amount as well as the interest based on the predecided rate. 

Unlike fixed deposits, fixed maturity plans fail to offer assured returns. The plans carry interest rate risk and credit risk. Interest rates refer to the rate of interest being affected by the fluctuation of price in the debt fund where the investment has been made. Credit risk occurs when the debt fund in which the company is invested, fails to generate returns. 

Liquidity of investment

In terms of liquidity, fixed deposits score more than fixed maturity plans. You can withdraw money from the fixed deposits in the middle of the term with small penalties. In case you need a regular source of income, you can opt for regular payouts from your fixed deposits

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On the contrary, fixed maturity plans do not allow premature withdrawal. You receive the total corpus at maturity. The only way to get access to the cash is by selling your plan at the stock exchange.

Investment returns

In terms of interest rate, fixed maturity plans surpass the fixed deposits. Fixed maturity plans offer higher interest rates than fixed deposits. Note that, the interest rates of fixed deposits are assured, whereas, the interest rates of fixed maturity plan is indicative. It means, the interest rates may change in the lock-in period and the returns you receive at maturity may differ from what you expected.

Taxation

The interest earned under both fixed deposits and fixed maturity plans is added to your income and get taxed as per your tax slab. For the short term, i.e., for a tenure of three years or less, fixed deposit and fixed maturity plan are taxed at the same rate. However, for the long term, fixed maturity plans get the indexation benefit and are subject to lower tax deduction than fixed deposits.

Both the fixed deposit and fixed maturity plan have their advantages. However, one is better than the other at times. In terms of interest rates, fixed maturity plans are a better choice, while in terms of flexibility and safety, fixed deposits win the race.