Why Select Debt Fund over Bank Fixed Deposit 10 Reasons

By Anupama Deshpande | October 12, 2017

Bank Fixed Deposit (FD) is a popular and favourite investment avenue in India as it offers fixed guaranteed returns and comes with relatively lower risk to the investors. Hence whenever we have idle money in our account, we go for bank FDs. But as the bank FD rates are depleting day-by-day, investors need to look for some other better alternatives to invest their savings. Debt Mutual Fund can be one of the best substitutes over bank fixed deposit. Debt Mutual Fund is a scheme in which the funds are invested by the professional fund manager to the debentures of the companies. In the past, debt funds have generated better returns than banks' FDs.

One thing that needs a mention here is that the returns generated by the debt funds are not guaranteed but are market linked. SEBI is the regulator of the Mutual Funds in India and mutual funds need to follow the guideline issued by SEBI & invest in the debentures of the companies having good credit ratings. Investment in debt instruments is considered a safe investment. Further, debt mutual funds are more tax-efficient than fixed deposits.

As the debt funds offer many benefits over bank FD, one should select Debt Fund over Bank Fixed Deposit. Detailed below are 10 big reasons to select debt mutual fund rather than bank FD.

10 reasons to select Debt Fund over Bank Fixed Deposit

Availability of Multiple Options

Various options of debt fund from 40 mutual funds in India are available. You can select better performing fund out of these options. Further, you may also select from Ultra Short Term Fund, Short Term Fund and Long Term Fund as per your suitability.

Better Returns

Debt Funds generate better returns than bank FDs over same tenure as per their past performance.

No Tax Deducted at Source (TDS)

No TDS is made by debt mutual fund when you withdraw your funds whereas banks make TDS on the interest income from bank FD at the rate of 10%.

Tax efficient returns

In case of debt funds, if you hold your investments for more than 3 years from the date of investment, you need to pay only 20% capital gains tax with indexation benefits. Taking into account the effect of indexation, your real tax outgo becomes much lower.

More Liquidity

You can withdraw from debt fund any amount, anytime you need. It takes only one day's time to get the amount credited to your bank account. While if you withdraw the amount from your bank FD before its maturity, you need to pay penalty.

No need to mention tenure

Unlike bank FDs, there is no need to mention the duration or tenure for debt funds.

Partial withdrawal allowed

You can withdraw a part of your investments from your debt mutual fund and let the rest investment remain in the fund that will earn returns.

No penalty on withdrawing early

Unlike a bank FD, you don't need to pay any penalty in many debt funds offered by the mutual funds.

Daily Returns

In case of debt funds, the returns are calculated on daily basis, whereas in bank FDs, they are calculated on quarterly basis. So you can see the value of your investments any time.

Invest through SIP

Mutual Funds give you an option to invest in debt mutual fund through SIP (Systematic Investment Plan) as well along with a lump sum investment. This facility is not there in bank FDs.

With the help of technology, today it has become very easy for us to visit various informative websites and select the best debt fund for us. There are many websites which provide comparative returns of debt mutual funds of different mutual funds for various tenures.

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About Anupama Deshpande
Anupama is a Co-Founder of CodeForBanks.com. She is an MBA (Finance) and Chartered Financial Analyst (CFA). She also carries a Fellowship degree in Life Insurance Sector and is a Master of Computer Application (MCA). She is an expert in Finance Field with an experience of over 18 years on different managerial positions in finance industry including Stock Market, Depository and Mutual Fund Sectors. Apart from that she has remained for few years in the field of marketing as well. Her suggestions and advice for investments have been very useful to many people.
Her vast interest & expertise in the field of finance have encouraged her to write the articles so that others can also get benefitted out of them. She never loses any opportunity to learn and be creative. She is a valuable asset for CodeForBanks.com & important resource to all those around her.