A fixed deposit is a sort of investment in which you deposit a large sum of money for a set period of time in exchange for a set rate of interest. When the investment matures, you receive both the original capital and the interest income. A Monthly Income Scheme, or MIS, on the other hand, is a financial deposit in which you pool your money with a lender and then earn returns on it. This generated income is subsequently distributed on a monthly basis. Both MIS and fixed deposits have advantages and disadvantages. This post will address the question, “Is it better to invest in an MIS or an FD?” according to your financial needs.
Important Factors to Think about before choosing between MIS and FD
There are a few crucial aspects to consider before selecting which investment choice is best between MIS and fixed deposit. Take a look at the MIS versus FD elements in the table below.
Guaranteed Earnings
A fixed deposit provides a steady stream of interest at a predetermined rate. This interest rate is set at the time your FD is opened. Before initiating a fixed deposit, you can use a fixed deposit calculator to estimate your returns.
A fixed deposit may be the best option for a cautious investor due to its ease of liquidity and high level of security. On the other hand, most monthly income programmes include an equity component. As a result, the quantity of returns earned through MIS is uncertain. As a result, you cannot be certain of the profits when you begin investing.
Payouts
A fixed deposit locks your money in for a set period, but you can withdraw it at any moment with a penalty. The penalty is normally around 1-2 percent, however, even if you pay the fine, you will still get interest on your FD until the day of withdrawal. The Indian Bank FD interest rates vary depending on the duration. The bank offers a variety of loan terms starting at seven days. If you remove your money from an MIS before the maturity date, you will be charged a penalty.
Risks Involved
When it comes to financial options, a fixed deposit has the lowest risk. MIS, on the other hand, carries a higher risk because the returns fluctuate with market volatility. Fixed deposits are unaffected by market swings, and you will receive the stated interest income when the term ends.
One advantage of MIS is that you will earn better returns than you predicted based on the performance of the stocks. You must understand as an investor that the reward is inversely proportional to the risk you take. The risk is essentially non-existent, and the rewards are guaranteed in the case of a fixed deposit. However, because equity is involved in a monthly income programme, the risk is more prominent.
Earnings in MIS vs. FD
The earnings on a fixed deposit are steady and at a predetermined rate of interest. The cash flow or profits generated by the monthly income scheme may fluctuate over time due to market movements. As a result, MIS is appropriate for you if you are willing to accept ups and downs in your earnings. A fixed deposit, on either hand, is a great option if you want to be sure of your returns.
In comparison to other MIS, the Post Office monthly income plan carries a low risk because it is backed by the Indian Postal Services’ sovereign guarantee. A POMIS also provides guaranteed income with a set return rate. However, you won’t be able to withdraw your funds until 12 months have passed since you began investing. A fixed deposit, on the other hand, offers excellent liquidity and a variety of payout alternatives, as previously noted. With a minimal penalty, you can take your money from a fixed deposit at any time.
Which is Better: MIS or FD?
If you are willing to take enormous risks and do not need to liquidate your invested principle throughout the tenor, a monthly income plan, or MIS, is appropriate. If you choose MIS, you will see a reduction in your rewards if you need to withdraw money early. A fixed deposit, on either hand, is a safer investment because the interest rate is fixed.
You can also withdraw your funds at any time and receive returns up to the time of withdrawal, but there will be a penalty. If you want a guaranteed income in a low-risk environment with variable payout possibilities, a fixed deposit is a preferable investment alternative.
A fixed deposit’s earnings will stay consistent and predictable. The cash flow earnings from an MIS might fluctuate over time as market movements affect the revenues. An FD is a way to go if you want to be sure of your interest rate. If you’re willing to accept ups and downs in your earnings, an MIS is a way to go.
