Fixed deposits and debt funds are rivals by birth. One has generations of trust and later has the promise to give a better return in a short time than fixed deposits interest rate. Both these instruments appeal the needs of those investors who are ready to compromise with the return but not on security and also to those who are looking for as much return as possible with minimum risk. In order to understand which instruments are better we need to do an in-depth analysis of key aspects:
1. Return: Fixed deposits in banks provide 6%-7.5%, whereas in NBFCs it rises up till 8-9.5%. Fixed deposits nowadays also carry the advantage of cumulative interest calculation. In the case of debt funds, the rate is usually 7-9%, few funds go as high as 10-10.5%.
2. Risk: Fixed deposits both by banks and NBFCs are guaranteed to yield a return at maturity. Debt funds do carry the risk of losing value in case of an increase in interest rate.
3. Liquidity: Open-ended debt funds provide the needed liquidity if required. In case of fixed deposits, one chooses the tenure beforehand and also have the option to break FD in between but at high charges or penalty.
4. Tax: TDS is deducted when FD annual interest is over Rs. 10,000. Interest income of debt fund is covered under the capital gain tax.
Read complete : Fixed Deposit Vs Debt Funds Which Is Better
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