Putting your hard-earned money somewhere good is a challenging task. There are many investment options available in the market. There are some advantages to all the schemes, and there are also some disadvantages. For this reason, the investor gets confused. There is a dilemma in the minds of many people about who should choose between Fixed Deposit and Mutual Debt funds. At the same time, some people think that both are the same. However, this is not the case. Fixed Deposit is considered a safe investment. But, one of its drawbacks is that it does not get much return.
So far, it has been observed that debt mutual funds have given higher returns than FDs. Debt funds are considered short-term investments. Debt funds have market-related risks. The country’s central banks are paying interest up to 7.5 per cent on fixed deposits of 1 to 5 years. Generally, the returns of debt funds are higher than bank FDs. If you also want to invest money in either of these two, first know their returns, risks and taxation.
Return
According to a Moneycontrol report, Anup Bhaiya of Money Honey Financial Services says that debt funds are more exposed to interest rate hikes as bond yields in the secondary market react more quickly to changes in interest rates. At the same time, FD interest rates increase with a delay. However, debt funds do not guarantee returns. At the same time, there is a guarantee of return in FD.
Risk
Priyadarshini Mulye, SEBI Registered Investment Advisor and Founder of EarthFinPlan.com, says that up to Rs 5 lakh invested in Fixed Deposit is safe. But, no such guarantee is available in debt funds.
Expenditure
There is no charge for investing in FD. At the same time, investing in debt funds attracts a recurring expense ratio charge. It can be up to 1 per cent.
Taxation
Mihir Tanna, Associate Director, SK Patodia & Associates, says that long-term capital gains tax will no longer be available on investment in debt mutual funds; now, it has been brought under the purview of short-term capital gains tax. No TDS is also applicable in debt funds. If the interest income in fixed Deposit is more than 40 thousand rupees in a year, then the bank deducts 10% TDS. A taxpayer not liable to pay tax must submit Form 15H or 15G to save TDS.