Investors are currently more drawn to mutual funds than small savings schemes such as Kisan Vikas Patra (KVP), bank fixed deposits (FD), Public Provident Fund (PPF), National Pension System (NPS), Post Office Recurring Deposit (Post Office RD), etc. According to the recent reports by the Reserve Bank of India (RBI), deposits of merely Rs 40,249 crores were made against this small-savings scheme compared to Rs 275,682 crores deposits made towards mutual funds in the same period. There’s no doubt that mutual funds have become one of the go-to investment options for all investors – new or experienced. This article aims to offer a comprehensive guide between a small savings scheme and mutual funds.


What is a mutual fund?

Mutual funds are a type of investment vehicle comprising a portfolio of different types of securities such as equities, bonds, cash, cash equivalents, etc. A fund house pools the money of various investors and invests in different securities according to the fund’s investment objective. A mutual fund is professionally managed by an expert known as a fund manager. Fund managers have in-depth knowledge, understanding, and skills about the functioning of the stock markets.

What is a small savings scheme?

Small-savings schemes are one of the most important sources of household savings in India. The central or state government runs these schemes to help investors save money for their future.

Why are mutual funds more popular than small savings schemes?

One of the reasons for the increased popularity of mutual funds among investors instead of savings schemes is that the interest in small savings schemes has significantly decreased after being linked to government bonds and securities. On the other hand, mutual funds can offer returns as high as 15-20% p.a.

Another reason could be the increased awareness initiatives by the Indian statutory bodies and market regulator – Securities and Exchange Board of India (SEBI) and Association of Mutual Funds in India (AMFI). These regulatory bodies have made constant efforts to popularize mutual fund investments among retail investors. Additionally, efforts were made to penetrate the mutual fund markets in Tier-II cities. All in all, significant returns and marketing by the central government in favor of mutual funds could be one of the reasons why mutual funds are more popular than small savings schemes.

Where should I invest my money?

Whether you decide to move forward with small-savings schemes or mutual funds entirely depends on your investment portfolio. If you are a conservative investor, then a small savings scheme could be an ideal bet for you as the government of India backs these savings schemes. However, if you are comfortable taking high risks to earn higher returns, you might want to invest in mutual funds. Make sure that your investment is aligned with your investment horizon, financial goals, and risk appetite. Happy investing!


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