Unit Trust vs Fixed Deposit = Growth potential vs Guaranteed safety
Both are investments, but they work very differently. Here’s the head-to-head:
1. Core difference
| Fixed Deposit(FD) | Unit Trust |
| You lend money to a bank | You a slice of 30- 50 investments |
| Bank promises fixed interest | No promise. Return depends on market |
| 100% copital safe if < 1.1M LKR | Value can go up OR down daily |
LK deposit insurance covers up to 1.1M per bank
2. Detailed comparison
| Feature | FD | Unit Trust |
| Return | Fixed. Ex: 8.5% for year | variable. 5% to 15%+ yearly |
| Risk | Almost Zero | Low to High, depends on fund type |
| Min amount | 5,000 – 25,000 LKR usually | 1,000 LKR |
| lock-in period | Yes. 1 month to5 years | No. Sell anytime |
| Penalty to withdraw | Yes. Lose interest if you break early | Usually 0% after 90 days. 0.5-1% before |
| Returns taxed? | Yes. 5% WHT deducted by bank | Yes. 10% WHT on interest/dividends. Capital gain = tax free |
| Beat inflation? | Rarely. If inflation 7% and FD 8%, you gain 1% | Possible. Equity fund avg 12% inflation 7%= 5% real gain |
| Who manages | Bank use it for loans | Fund manager invest in stocks/bonds |
| Best for | Money you need in 6-12 months, 100% safety | Money you won’y touch for 3+ years, want growth |
3. Real example with 100,000 LKR for 1 year
FD at 8.5%:
End value = 108,500 LKR. Guaranteed. Even if stock market crashes tomorrow.
Money Market Unit Trust at ∼ 7%:
End value = ∼107,000 LKR. Not guaranteed. Could be 106k or 108k. But you can withdraw anytime.
Equity Unit Trust:
Could be 130,000 LKR if CSE booms. Could be 80,000 LKR if CSE crashes. No lock-in, but you shouldn’t sell in a crash.
4. When to pick which one
Pick FD if:
1. You NEED the exact amount on a specific date. Ex: University fees in 12 months
2. You lose sleep when investments drop 5%
3. Your timeline is <1 year
Pick Unit Trust if:
1. Timeline is 3+ years and you want to beat inflation
2. You’re ok seeing -10% in some years to get +15% in others
3. You want to start with 1k, not 25k
5. The “Money Market Fund vs FD” question
This is the closest comparison. Both are low risk.
- FD: 8.5% locked 1 year. Break it = penalty.
- Money Market Fund: ∼7.5% variable. No lock-in.
Right now FD rates are high, so FD often wins for 1-year money. When FD rates drop to 5%, Money Market Funds become better.
Bottom line: FD = “I promise to pay 8.5%”. Unit trust = “I’ll try for 10%, but might be 5% or 15%”.
