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Are debt funds better than FDs (fixed deposits)?

I am hearing lot of people saying to invest in debt funds instead of fixed deposits. Can someone explain why debt funds are better than fixed deposits?

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Ankit

Debt-oriented funds are basically Mutual Fund schemes whose objective is to preserve capital vis-à-vis generate return each year.

Debt fund is a mutual fund which invests most of the money collected from investors into fixed income instruments like corporate bonds, government bonds (both state and central), bonds issued by banks, certificate of deposit, treasury bills etc. These mutual funds are best for investors who are risk aversive in nature, do not wish to invest in stock market and expect fixed return on investment.

Reasons for choosing Debt Funds over Fixed Deposits are:

·     Liquidity- Debt Funds solves the problem of liquidity. An investor can withdraw his money anytime he feels like when he invests in a debt fund, whereas in case of fixed deposits investments cannot be withdrawn before the maturity.

·     Better returns- Debt Funds offer a return of 7-10% whereas Fixed Deposits offer a very low return of 6-7%. After demonetisation, State Bank of India (SBI), cut its interest rate on FDs to 6.90% for maturity period of 1-year and to 6.50% for maturity periods between 3 to 10 years, which is lowest in the industry now.

·     SIP- Debt Funds offer the option of investing through Systematic Investment Plan (SIP) as well as lumpsum, whereas in case of Fixed Deposits investments have to be made in lumpsum only.

·     Tax Benefits- No deduction of taxes or TDS on the earning from debt funds. Taxes to be paid only when an investor sell or withdraw fund units and depending on period of the investment. Whereas, the interest earned on FDs are fully taxable at the normal rate applicable to the investor along with yearly deduct TDS on interest income from the FDs.

All the above points basically show that why people these days are shifting from the investing in Fixed Deposits to investing in Debt Funds.

Few good debt funds for investor's reference are:

Pijush Kanti Biswas

Yes, definitely investment in debt mutual funds is much better option than parking your money in bank Fixed Deposits(FDs).


Debt fund is a mutual fund which invests most of the money gather from investors into fixed income instruments like corporate bonds, government bonds (both state and central), bonds issued by banks, certificate of deposit, treasury bills etc. These mutual funds are best for investors who are risk aversive in nature, do not wish to invest in stock market and expect fixed return on investment.

Both fixed deposits (FDs) and debt mutual funds are low-risk investment financial instruments and were used to be seen as comparable investment options. But recently after demonetization, major Indian banks, in both public and private sector, have revised the interest rates they offer on FDs. Country’s largest lender, State Bank of India (SBI), cut its interest rate on FDs to 6.90% for maturity period of 1-year and to 6.50% for maturity periods between 3 to 10 years, which is lowest in the industry now. Whereas, return on debt mutual funds are around 9-11% annually. In such a scenario, parking your surplus cash in debt mutual funds is a wise investment.

Also, No deduction of taxes or TDS on the earning from debt funds. Taxes to be paid only when an investor sell or withdraw fund units and depending on period of the investment. Whereas, the interest earned on FDs are fully taxable at the normal rate applicable to the investor along with yearly deduct TDS on interest income from the FDs. In addition to that, debt funds are highly liquid which can be easily converted in to cash that too within a day time.

To know more about debt fund, go to:

https://groww.in/questions/what-is-debt-mutual-fund

https://groww.in/questions/what-are-the-advantages-and-disadvantages-of-investing-in-debt-funds-162

https://groww.in/questions/what-are-various-types-of-debt-funds-163


Happy Investing!

Ishan

Yes, debt mutual funds are much better than FDs.


Reasons to invest in Debt Mutual Funds:


1. In debt mutual funds, you get relatively higher returns than FDs

2. You can redeem the money invested from most debt mutual funds without any charges

3. You can earn higher returns even if you invest for short periods like 3 months, 4 months etc

4. Tax on returns of debt mutual funds only need to be paid after redemption


Hope this helps.

Ishan

Mutual fund investments are subject to market risks. Please read the scheme information and other related documents carefully before investing.
Past performance is not indicative of future returns. Please consider your specific investment requirements, risk tolerance, investment goal, time frame, risk and reward balance and the cost associated with the investment before choosing a fund, or designing a portfolio that suits your needs.
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