Photo:India TV Which is better between Fixed Deposits and Debt Mutual Funds?
FD Vs Debt Mutual Funds: Good investments always come in handy in bad times. Everyone is looking for a better investment. Even if his income is not very high. Because he trusts that if he loses his job today or for some reason he is not able to work, then the investment made in today’s time will prove to be a great boon for him at that time. But there are many options in this too. Some people want to invest their money in Fixed Deposits and Debt Mutual Funds. Let us understand which one can prove to be a better option for you.
these things are important
Fixed Deposit and Debt Mutual Funds are the most popular asset class for risk-averse investors. Fixed deposits have proved to be a reliable option for Indian retail investors despite rising interest rates, while debt mutual funds are for those who invest in debt securities. Debt funds have generally given better annualized returns than FDs. However, bank FDs are less risky due to DICGC coverage. The risks associated with debt mutual funds include credit risk, interest rate risk, inflation risk and non-reinvestment risk, while the risks associated with fixed deposits include liquidity risk, default risk and inflation risk.
Key Differences Between Bank FD and Debt Mutual Fund
- The securities in Debt Mutual Funds are subject to the daily market, while FDs provide returns without volatility.
- Most debt funds are open-ended i.e. do not levy any penalty on withdrawals, whereas in case of FDs, early withdrawals during the tenure of the deposit attract penalty.
- If interest rates fall, liquid funds can give returns higher than the portfolio yield. On the other hand, in FD, the return is just the opposite, that is, the FD rate remains the same during its tenure.
- In Debt Mutual Funds if an investor stays invested for 3 years or more, the applicable tax rate is 20% with indexation benefit, while in bank FDs an investor has to pay tax on the margin rate which is that can be as high as 30-40%
- Bank FDs are unsecured, whereas Debt Funds are secured by the securities held by them. Debt funds can be preferred over FDs, as debt funds are safer, offer better liquidity, potentially give higher returns than the portfolio yield.
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