When it comes to risk-free investments, Fixed Deposits (FDs) and Debt Funds are two common options. Although FDs have been the more popular choice, Debt Funds are gaining popularity - because they have the ability to give better returns than FD and are just as safe as FDs.
In fact, according to a report, 72 Debt Funds of 213 satisfied the test of having Credit Risk equal to, or better than a Fixed Deposit.
Let us analyse the main differences between FDs and Debt Funds
Particulars | Debt Fund | Fixed Deposit |
Returns | 5.25% - 7.25% | 6.0% to 8.0% |
Dividends | Yes | No |
Risk | Low to moderate | Low |
Liquidity | High | Low |
Mode of investment | SIP or lump sum | Only lump sum |
Penalties or charges on early withdrawal | Varies based on type of Mutual Fund | Yes |
Other expenses | Expense ratio is involved | No management costs |
Taxes | STCG as per income tax slab; LTCG @20% with indexation benefits
What's the indexation benefit?
Indexation benefit accounts for inflation. This method ensures your returns are taxed fairly. | As per income tax slab |
