Rs 4,00,000 Lump Sum: Mutual Funds vs Gold vs FD Return Comparison

India’s financial services sector has undergone a massive transformation in the last few years. With a booming fintech sector, investors have a wide range of investment options available in the market today. Banks and non-banking financial companies (NBFCs) are offering customised products to meet the specific needs of investors across all income categories. It could be confusing to choose the right investment instrument for many investors due to the availability of a plethora of options.

Traditionally, gold and fixed deposits have remained preferred investment options in India. However, in the last few years, mutual funds have gained popularity due to their potential to offer higher returns. Financial experts often suggest diversifying your investments across multiple instruments. If you are planning to invest Rs 4,00,000 lump sum, you can explore options like mutual funds, gold and FDs.   

These instruments come with their own benefits and limitations. They also vary widely in nature, risks, tenure and returns. So, it’s important to evaluate all key factors linked to mutual funds, FDs and gold before investing.  

Let’s take a look at basic details about these instruments before investing.

Mutual funds are investment instruments where Asset Management Companies (AMCs) collect money from multiple individual investors to build a corpus. This amount is invested across equities, bonds and other assets by the fund managers. Mutual funds offer market-linked returns, enormous flexibility and diversification.  

On the other hand, gold and FDs offer assured returns. Though they offer comparatively lower returns, investors with a low-risk appetite often prefer these instruments. Both investment options could be suitable for conservative investors prioritising steady growth over higher returns.  

As per industry trends, equity mutual funds have offered around 12% return per annum on average over a long-term horizon. On the other hand, gold investments have yielded around 10% annual return over a 10-year tenure. Most banks and NBFCs currently offer interest rates of 7-8% for FDs with a tenure of 5 years and above.  

Let’s see how a lump sum investment of Rs 4,00,000 lakh for a tenure of 10 years in mutual funds, gold and FDs can grow.  

Investment amount: Rs 4,00,000

Investment duration: 10 years

Expected interest rate: 12%

Estimated returns: Rs 8,42,339

Total value: Rs 12,42,339

Assuming an interest rate of 12% per annum, a lump sum investment of Rs 4 lakh may grow into Rs 12.42 lakh in 10 years.

Invested Amount: Rs 4,00,000

Expected interest rate: 10% per annum

Estimated profit: Rs 6,37,497

Total value: Rs 10,37,497

As seen from the above calculation, a lump sum investment of Rs 4,00,000 in gold could rise more than two times to Rs 10.37 lakh in 10 years at an expected return of 10% per annum.

Invested Amount: Rs 4,00,000

Tenure: 10 years

Expected interest rate: 8% per annum

Estimated returns: Rs 4,83,216

Total Value: Rs 8,83,216

A lump sum investment of Rs 4 lakh in a fixed deposit with expected annual returns of 8% may grow into Rs 8.83 lakh in 10 years.  

As per the above calculations, mutual funds appear to be offering the highest returns for a lump sum investment of Rs 4,00,000 over a tenure of 10 years.

It is important to note that mutual funds, gold and FDs vary widely in risks and returns. While mutual funds and gold are subject to market risks, FDs offer steady returns. Investors should assess risk factors and their financial goals before investing.