Right investment is a key to have a bright future. Many times your decision to invest in something either pays off or haunts you. While most of the times you are in control of it sometimes you feel that better options could have been sought. One such crucial case is when you have to decide whether you want to opt for Fixed Deposit or you want to opt for Debt Funds.
There are two areas where you can invest your money and be rest assured that your hard earned money is safeguarded. But is it really as safeguarded as you think? Are fixed deposit returns better than Debt funds? Is Debt mutual fund safer than fixed deposits? All these are the questions that we have in our mind while investing.
What is a Fixed Deposit?
Let us understand what a fixed income investment and fixed deposit returns are. Fixed deposit is a financial option provided by the banks to its customer where the customers can invest a certain amount of money for a long period, i.e. maturity date with the bank and in return, they get a higher rate of interest.
What is a Debt Fund?
Debt fund is another option provided by the banks which can either be presented to you as a mutual fund or exchange fund, depending upon your requirements. A debt fund comprises of securitized products along with long-term and short-term bonds and much more.
Now after understanding the basics of these two modes of investment, it’s time to talk about the comparisons between the two. Fixed Deposit is one of the safest modes of investment in a long run but it too comes with a catch. You cannot guarantee whether under fixed deposit your amount will get multiplied if the sum is above INR 1 Lakh. The interest rate fluctuates and it mostly depends upon the credit rating of your bank.
Why is a Debt Mutual Fund Investment Better than a Fixed Deposit Investment?
Safety of your Capital: Safety of your capital whether fixed deposit returns or debt funds is completely reliant on the credit rating of your bank. Thus one has to choose his bank carefully. Independent rating agencies provide this Credit rating to banks which determines the interest rate and returns. It’s a common thought that Debt Fund is riskier to invest in as compared to Fixed Deposit when that’s not the truth. Debt Mutual Funds are equally safe as compared to the Fixed Deposit one.
Access to your investment: While you have to break an entire fixed deposit investment even if you just want to withdraw a small amount of it, say INR 10,000/-, not only will your entire fix deposit break but the bank might penalize you from 0-1.5% of your investment for withdrawing the amount before the maturity period. On the contrary, you can withdraw any amount you want from the debt mutual fund investment. The return you’ll receive will be simply based on how much your investment earned.
Income is affected by tax: Income through Debt Mutual Fund is comparatively more than that of Fixed Deposit. Under Fixed Deposit, you just receive a good interest rate of FD on the maturity whereas under Debt Mutual Fund you receive dividends or capital appreciation. Moreover Fixed Deposits are taxed a maximum rate while debt fund tax you almost nil if your investment surpasses 3 years. Even you decide to opt out of debt mutual fund, the tax charged will be significantly less than that of fixed deposit.
Thus to conclude Fixed Deposits vs Debt Funds, we can say that Fixed Deposit even with all its positives doesn’t outshine the Debt Funds investment. Not only does the Debt Funds investment gives you flexibility it also gives a chance for you to make more money out of your investment.