Share:

FD (Fixed Deposit) is one of the most popular investment options in India. People often recommend it to their children as a must-do option. But many people have this question – ‘which bank is best for fixed deposit?’

Nearly all banks offer very similar returns.

The question should instead be – ‘should I invest in FD?’

Invest in direct mutual funds

  • Enjoy 0% commission
  • SIP starting at ₹500

Should I Invest in FD?

Whether FD is the best for you or not is a question best answered by you. But you should you aware of other alternatives to fixed deposits.

One of the best alternatives to FD is putting money in a debt fund.

3 Reasons not to Invest in FD

  1. Returns: FD has lower returns when compared to the alternative option of debt funds. FD are giving a return of around 6.5% these days whereas debt funds are doing around 8%.
  2. Taxation: The returns from an FD is charged according to your income slab. Debt funds are charged based on your income slab till 3 years from investment.If withdrawn after 3 years, the applicable tax 20% adjusted with benefit if indexation plus 3% cess. Read more: the tax on mutual funds.
  3.  Liquidity: If you wish to take your money out of an FD before its maturity date, you need to pay a penalty of 0.5% – 1% depending on your bank.Many debt funds, like SBI Ultra Short Term Debt Fund, have no exit load at all. Some that do have an exit load usually have it for a small number of days like 90 days only.

Where to Invest to Earn More than FD?

The following 2 debt funds are ideal for investing instead of opening a fixed deposit account.

Franklin India Low Duration Fund 

franklin india low duration fund

This debt fund has given nearly 8% over the last 1 year. Even better, over a period of 5 years, it has returned 9.45% per annum.

There is an exit load on this fund which is 0.5% till 90 days from the investment. After 90 days. there is no penalty or exit load when withdrawing.

See more fund details here.

L&T Short Term Income Fund

L&T short term income fund

This debt fund has returned nearly 8% in the last 1 year and nearly 9% over the last 5 years.

There is no exit load after 270 days from the investment. Before 270 days, 1% will be charged if you withdraw more than 10% of the invested amount.

See more fund details here.

FD Interest Rate in Banks

Following are the interest rates offered by some popular banks in India.

FD Interest Rates in SBI6.50%
FD Interest Rates in HDFC6.75%
ICICI Bank FD Rates6.50%
IDFC Bank FD Rates7.00%
Bandhan Bank FD Rates7.00%
RBL Bank FD Rates7.10%

As you can see, the rate of return offered by debt funds is higher than the FD interest rate.

Not just that, the taxation is also higher in case of FD.

Conclusion

Investing in debt funds is a better option than FD in terms of return and liquidity while exposing you to similar levels of risk.

This is why starting an FD does not seem like a very good idea.

Happy investing!

Investment in securities market are subject to market risks, read all the related documents carefully before investing. Please read the Risk Disclosure documents carefully before investing in Equity Shares, Derivatives, Mutual fund, and/or other instruments traded on the Stock Exchanges. As investments are subject to market risks and price fluctuation risk, there is no assurance or guarantee that the investment objectives shall be achieved. NBT do not guarantee any assured returns on any investments. Past performance of securities/instruments is not indicative of their future performance.

Click to rate this post!
[Total: 0 Average: 0]
Share: