The significance of Fixed Deposits (FD) will never fade in India simply because a vast section of the population will always look for an instrument that offers a predictable return and peace of mind. It is especially pertinent for risk-averse people, especially people like retirees.
Debt funds, on the other hand, are a category of mutual funds that invest in fixed-income instruments like government/corporate bonds, money market instruments and corporate debt papers.
Returns
There are a few differences between FDs and debt funds, which need a relook. Perhaps the most important parameter that any common man looks for in an investment instrument is returns. Debt funds are believed to offer slightly superior returns in comparison to FDs. Fixed deposits fetch predictable returns and more certainty while over the long-term debt mutual funds give slightly higher returns compared to FDs.
Liquidity
Another big concern in any investment avenue is liquidity, or the ability to convert it into cash. FDs suffer from a drawback on this score. If you want to withdraw money from an FD before the maturity term ends, the bank or NBFC in question might charge a penalty. However, there are no penalties for early withdrawal in debt funds and the investor can redeem units of such a fund any time.
Investment strategist Prasunjit Mukherjee, chief executive officer of Plexus Management Services told New9live that his vote goes with debt funds, slightly superior returns and liquidity being two of the key drivers of the decision.
The taxation question
Another significant aspect is how returns are taxed. FDs are subject to income taxes every year. On the other hand, mutual fund units are taxed on redemption and, therefore, allows one to defer taxation.
Perspective of an investor is crucial in determining what is appropriate for an individual. If assurance in return and safety of capital get primacy, fixed deposits score over debt funds. But if slightly higher returns and taxation benefits are important, debt funds can serve one’s purpose better than fixed deposits (FD).
The debate on debt funds versus fixed deposits is nothing new but it has started raging with renewed vigour in recent times. Personal Finance Business News – Personal Finance News, Share Market News, BSE/NSE News, Stock Exchange News Today
