Fixed Deposits (FD) are not just investments, they are a part of Indian tradition and culture. What most people don’t realize is that they can earn more interest with similar levels of risk by investing in debt funds instead of FD.

Even most equity fund investors have certain amounts invested in FDs for their short-term and mid-term financial goals. But now, debt funds are becoming an increasingly widespread rival to the hallowed FD.

Read more: 5 Reasons Why Debt Funds Are Better Than Fixed Deposits

In this article we will show you the comparison between FD rates of India’s major banks with top 5 debt mutual funds of 2018.

Bank FD Rates Offered by Major Banks in India

Rates for FDs of most famous Indian banks for 1 year and 2 year tenure of investment:

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S.No Institution FD Rates p.a. for 1 year FD Rates p.a for 2 year
1

Allahabad Bank FD Rates

6.6% 6.5%
2

Axis Bank FD Rates

7% 6.25%
3

Bank of Baroda FD Rates

6.45% 6.5%
4

Canara Bank FD Rates

6.75% 6.65%
5

Central Bank of India FD Rates

6.6% 6.5%
6

Citi Bank FD Rates

5.25% 5.25%
7

Corporation Bank FD Rates

6.5% 6.5%
8

DCB Bank FD Rates

6.85% 7%
9

Dena Bank FD Rates

6.5% 6.25%
10

Deutsche Bank FD Rates

6% 6.9%
11

Federal Bank FD Rates

6.7% 6.75%
12

HDFC Bank FD Rates

6.75% 6.25%
13

HSBC Bank FD Rates

5% 6.25%
14

ICICI Bank FD Rates

6.6% 6.75%
15

Indian Bank FD Rates

6.5% 6.25%
16

Indian Overseas Bank FD Rates

6.75% 6.25%
17

Indus Ind Bank FD Rates

7% 6.8%
18

Kotak Bank FD Rates

6.6% 6.5%
19

Lakshmi Vilas Bank FD Rates

7% 7%
20

Oriental Bank of Commerce FD Rates

6.85% 6.5%
21

Punjab National Bank FD Rates

6.9% 6.8%
22

Royal Bank of Scotland FD Rates

4% 4%
23

South Indian Bank FD Rates

6.75% 6.75%
24

Standard Chartered Bank FD Rates

6.9% 6.5%
25

State Bank of India (SBI) FD Rates

6.4% 6.5%
26

Syndicate Bank FD Rates

6.5% 6.5%
27

UCO Bank FD Rates

6.65% 6.55%
28

United Bank of India FD Rates

6.5% 6.25%
29

Vijaya Bank FD Rates

6.5% 6.6%
30

Yes Bank FD Rates

7.1% 7.1%
* For Investment of less than Rs. 1 crore; rates as observed on 25/04/2018

As we can see from the table above the highest return that an investor can get by parking his money in Indian banks for 1 year and 2 year is 7.1%.

Returns from the top 5 debt fund over an investment tenure of 1 year and 3 years:

S.No Debt Mutual Fund Type 1 year return 3 years return
1 Franklin India Ultra Short Bond Fund Ultra short term 8.05% 9.10%
2 DHFL Pramerica Short Maturity Fund  Short term 7.13% 8.83%
3 ICICI Prudential MIP 25 MIP 9.25% 10.42%
4 Franklin India Low Duration Fund Ultra short term 8.31% 9.40%
5 Franklin India STIP Short term 8.66% 9.14%

As can be seen from above table, top debt fund clearly outscored FD rates from most famous Indian banks.

A Look into Top 5 Debt Funds That Gave Better Returns Than FDs

Here’s the list of top 5 debt funds which gave return higher than FDs:

1. Franklin India Ultra Short Bond Fund

This is an ultra-short bond fund launched on January 1, 2013.

It is a debt fund with very low risk and has given a return of 9.53% since its launch.

Returns per annum over the years from this fund are:

Duration Returns
1 year  8.05%
3 years  9.10%
5 years  9.49%

Invest in Franklin India Ultra Short Bond Fund Now

Rating by Groww 5 star
AUM (Fund Size) ₹6,979 Cr
Minimum SIP ₹1,000
Minimum SWP ₹1,000
Performance w.r.t its Benchmark Has consistently outperformed its benchmark Crisil Liquid since its launch.
Age of the fund 5 years old
Expense Ratio 0.35%
Exit Load NIL
Type  Open-ended

This fund invests in short-term debt securities with some small portion in long-term securities. The returns in this category are similar to the returns offered by short-term funds.

2. Pramerica Short Maturity Fund 

This is a short-term debt fund launched on January 1, 2013. It is a debt fund with low risk and has given a return of 9.46% since its launch.

Returns per annum over the years from this fund are:

Duration Returns
1 year  7.13%
3 years  8.83%
5 years  9.34%

Invest in DHFL Pramerica Short Maturity Fund Now 

Rating by Groww 4 star
AUM (Fund Size) ₹1,696 Cr
Minimum SIP ₹500
Minimum SWP ₹1,000
Performance w.r.t its Benchmark Has consistently outperformed its benchmark Crisil Short-Term Bond since its launch.
Age of the fund 5 years old
Expense Ratio 0.43%
Exit Load NIL
Type  Open-ended

The objective of this scheme is to generate a steady return with low to medium market risk by investing in a portfolio of short-medium term debt and money market securities.

3. ICICI Prudential MIP 25 

This is a Monthly Income Plans (MIPs) type Debt Mutual Fund launched on January 3, 2013. It is a debt fund with moderately low risk and has given a return of 10.32% since its launch.

Returns per annum over the years from this fund are:

Duration Returns
1 year  9.25%
3 years  10.42%
5 years  12.45%

Invest in ICICI Prudential MIP 25 Now 

Rating by Groww 5 star
AUM (Fund Size) ₹1,460 Cr
Minimum SIP ₹1,000
Minimum SWP ₹500
Performance w.r.t its Benchmark Has consistently outperformed its benchmark CRISIL Hybrid 85+15 Conservative since its launch.
Age of the fund 5 years old
Expense Ratio 1.39%
Exit Load If redeemed between 0 Year to 1 Year, exit load is 1%;
Type  Open-ended

The scheme seeks to generate long-term capital appreciation from a portfolio that is invested 70 to 100% in money market and debt instruments and up to 30% in equity securities with S&P CNX Nifty stocks as the universe.

4. Franklin India Low Duration Fund

This is an ultra short-term fund type debt mutual fund launched on January 1, 2013. It is a fund with very low risk and has given a return of 9.73% since its launch.

Returns per annum over the years from this fund are:

Duration Returns
1 year  8.31%
3 years  9.40%
5 years  9.69%

Invest in Franklin India Low Duration Fund Now

Rating by Groww 5 star
AUM (Fund Size) ₹5,586 Cr
Minimum SIP ₹1,000
Minimum SWP ₹500
Performance w.r.t its Benchmark Has consistently outperformed its benchmark
Age of the fund 5 years old
Expense Ratio 0.45%
Exit Load If redeemed between 0 months to 3 months, exit load is 0.5%
Type  Open-ended

The fund aims to earn regular income through investment primarily in domestic fixed income instruments and highly rated debt securities.

5. Franklin India STIP

This is an ultra short-term fund type debt mutual fund launched on January 1, 2013. It is a fund with low risk and has given a return of 10.04% since its launch.

Returns per annum over the years from this fund are:

Duration Returns
1 year  8.66%
3 years  9.14%
5 years  9.91%

Invest in Franklin India STIP Now

Rating by Groww 5 star
AUM (Fund Size) ₹9,820 Cr
Minimum SIP ₹500
Minimum SWP ₹1,000
Performance w.r.t its Benchmark Has consistently outperformed its benchmark
Age of the fund 5 years old
Expense Ratio 0.89%
Exit Load If redeemed till 1 year, the exit load is 0.5%
Type  Open-ended

The scheme aims to generate stable returns by investing in fixed income securities with shorter maturity periods likely to be less than three years, the average maturity of the portfolio of the scheme is likely to be between 4 months and 12 months, and the maturity of individual securities in the scheme is likely to be less than 3 years.

Conclusion

Debt funds clearly outscored bank FDs in terms of returns on investment.

The declining interest rate regime and the excessive liquidity caused by last year’s demonetization have forced banks to reduce their FD interest rates to historic lows.

This, in turn, is forcing many retail investors to turn towards smarter investment alternatives like debt mutual funds.

Investment in debt mutual funds is a much better option than parking your money in bank FDs

But, you should weigh your decision on your risk appetite, time horizon, and investment goals.

As the market looks positive in last few years and there are several prospects for economic growth in coming years with the announcement of Union Budget 2018, it makes more sense to opt for debt funds.

Remember, don’t invest in debt funds without doing your homework. Performance track record along with scheme-specific attributes, portfolio credit quality, fund manager track record and expense ratios really do matter.

To look at some of the best performing funds from every category of mutual funds, check out Groww 30 best mutual funds to invest in 2018.

Happy investing!

Disclaimer: the views expressed here are of the author and do not reflect those of Groww.