Sign up with Google
Debt fund vs fixed deposit?
To answer this question, let’s discuss some basic points of differentiation between fixed deposits and debt funds–
As we can see, each instrument has their own benefits and disadvantages. Depending upon our risk appetite and return requirements, we must decide upon the type of instrument that will suit our portfolio best.
Debt fund vs Fixed Deposit
Return on Investment
Fixed Deposits (FDs) offer a fixed interest rate, which is generally lower than what you might earn from well-managed Debt Funds, especially over the long term.
Risk Assessment
FDs are very low-risk and are not affected by market fluctuations. Debt Funds, while exposed to market risks, provide stable returns and are less risky than Equity Funds. You can manage the risk in Debt Funds by diversifying and choosing funds with high-quality credit instruments.
Liquidity
FDs usually have a lock-in period and penalties for early withdrawal. Debt Funds, on the other hand, are more liquid. Investors can buy and sell them as needed without facing significant penalties.
Taxation Differences
FDs are less tax-efficient because the interest earned is taxed according to your income tax bracket. This can significantly reduce returns for those in higher tax brackets. Debt Funds offer better tax efficiency, with deferred tax treatment and indexation benefits for long-term investments.
