If you have Rs 5 lakh and you want to invest it for the next 5 years, then Bank FD, Post Office Term Deposit and Mutual Fund can be the three major options. The returns and risks are different in all three. The returns in FD and Post Office are relatively fixed, whereas in Mutual Funds, you can get more or less returns depending on the market performance.
How much will you get by investing Rs 5 lakh in Bank FD?
If Rs 5 lakh is invested in Bank Fixed Deposit (FD) for 5 years and an average interest of 7% is received annually, then after 5 years this amount can be around Rs 7.08 lakh. However, FD interest rate of different banks is different, hence it is important to compare the current interest rate before investing.
What is the return on investing Rs 5 lakh in Post Office?
Post Office Term Deposit is also an investment option like FD. According to the given interest rates, interest is available on term deposit of 1 year, 6.9%, 7% on 2 years, 7.1% on 3 years and 7.5% on Term Deposit of 5 years.
If Rs 5 lakh is invested for 5 years at the rate of 7.5%, then after 5 years the amount can be around Rs 7,24,974. That is, in this example the return of Post Office is slightly higher than the estimate of Bank FD.
What is the return on investing Rs 5 lakh in Mutual Fund?
If you invest Rs 5 lakh in lump sum in Mutual Fund then the returns will depend on the market. There is no guarantee of interest in it like FD or Post Office. For example, if an average annual return on investment is 12%, then after 5 years Rs 5 lakh can become approximately Rs 8.81 lakh. However the 12% return is just an example. If the market remains weak, returns may decrease and the value of investment may also decrease.
With higher returns there is also higher risk
Among these three options, the potential return from Mutual Fund can be the highest, but there is also market risk associated with it. There is no guarantee of getting 12% annual returns. Whereas returns in Bank FD and Post Office Term Deposit are relatively stable and at pre-determined rates.
What is the difference between the three options?
If Rs 5 lakh is invested for 5 years, then the amount in Bank FD at 7% annual interest rate can be around Rs 7.08 lakh. According to 7.5% interest in 5 years term deposit of Post Office, this amount will be around Rs 7.25 lakh.
Whereas if an average annual return is 12% in Mutual Fund, then after 5 years the amount can be around Rs 8.81 lakh. That is, according to this estimate, one can get about Rs 1.73 lakh more from Mutual Fund than FD and about Rs 1.56 lakh more than Post Office. However, the returns of Mutual Funds depend on the market and are not guaranteed.
Which option for whom?
If your priority is security and fixed returns then FD or Post Office Term Deposit can be considered. If you can take the market risk and are investing for a period of 5 years or more, then Mutual Fund can offer the possibility of higher returns. Note: The figures given above are examples based on the interest/return rates given. Actual returns may be affected by taxes, changes in interest rates and market performance.
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