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It is essential to know everything about a financial instrument before you decide to invest your money in it. Debt Mutual Funds and Fixed Deposits are wise investment options, yet they differ greatly from one another. Every investor worries about the risks involved in making investments due to the shifting market and economy. FDs have consistently been the most widely used investment strategy. However, there has been a new trend where people have actively begun to invest in debt mutual funds as well. An FD will guarantee that you receive your total principal amount plus the interest at maturity, even though a debt mutual fund may offer you higher returns. You may need to know all about debt funds vs FD if you want to choose between these two investment options.

FD vs Debt Funds

The importance of mutual funds has increased over the past few years. As a result, FDs are no longer the most sought-after long-term investment options. The opportunity presented by the lower deposit return rates at the time of the 2016 demonetisation has been seized by mutual funds. The availability of mutual funds, which also save on taxes, increased their popularity. As debt funds started to offer higher rates combined with liquidity, many low-risk investors started to leave them. Here’s more on FD vs Debt Mutual Funds.

  • FD

When doing a debt mutual funds vs fixed deposits comparison, note that the money you place into a fixed deposit is locked in for a specific amount of time. Banks give depositors the freedom to invest their money across a range of tenors, from seven days to ten years. The rate of interest is one significant distinction between debt fund vs FD. The length of time that your investment is placed with a financial institution determines the rate of interest for an FD. A fixed deposit is an investment option provided by banks and NBFCs to assist you in creating sound financial practices and increasing your wealth at the same time. An FD requires a one-time lump sum investment for a specific period of time. You can choose to receive the interest either on a regular basis or all at once when the deposit reaches maturity.

  • Debt Funds

A debt fund is an investment in fixed-income assets such as government bonds, corporate debt securities and other money market instruments. Each of these instruments has a predetermined maturity date and a potential interest rate. As a result, they are known as fixed-income securities. As you read more on debt mutual fund vs FD, note that debt securities are low-risk investing options since returns from investments made through debt mutual funds are typically unaffected by market movements.

Things to Consider While Investing in Debt Funds 

A debt mutual fund's main objective is to provide you with a consistent income all through the investment period. In order to receive these benefits, you are required to select a specified time frame. Debt funds are impacted by the economy and its changes. Debt mutual funds are thought to carry less risk than equity funds since they invest in fixed-income securities with established interest rates and maturity values. This is due to the fact that your returns, notwithstanding market fluctuations, will fall within a reasonable range. 


The following are factors to take into account while investing in debt funds:


  • You need to be informed of and consider the dangers posed by debt funds.

  • You must determine which form of debt funds would best fulfil your financial objectives. Debt funds do not assure returns, therefore you must decide if you want to choose debt funds or not.

  • You need to decide whether or not you want another source of earning with risk factors or not because debt funds can be thought of as an additional source of income to supplement regular pay income.

  • To manage funds, debt fund managers are paid a management fee.

  • It is advisable to research various debt fund sources and the services they provide before investing in them.

  • Making contact with a professional can assist you in better comprehending the foundations of debt funds, investment options, eligibility requirements, etc.

Difference Between Debt Funds & Fixed Deposit

FD vs Debt Fund

You must continue to accept some risk despite the fact that debt funds invest in fixed-income securities. FDs have various advantages, including guaranteed returns for investors and constant quoted interest rates regardless of market performance. Everything is based on the interest rate you decide to lock in with while you are making your initial deposit. The table below would give you a detailed idea on certain particulars of debt MF vs FD:


Debt Funds

Fixed Deposits

Estimated Rate of Returns



Dividend Option




Low to Moderate





Investment Expenditure

A nominal expense ratio is charged

No management costs

Which Investment Should You Consider? 

You can now choose whether you should invest in an FD or a debt mutual fund based on the facts provided above. An FD is your safest alternative even though debt mutual funds have a low risk component. The level of risk is the primary distinction between debt mutual funds and fixed deposits. An FD is a secure investment if you'd like to lower your risk. FDs are a valuable financial tool to use because they are available to everyone and are simple to open.


  • ✔️Debt Funds vs FD. Which one is better?

    Debt funds are more tax-efficient than fixed deposits. After taking into account the benefits of indexation, capital gains in debt funds held for more than three years are subject to a 20% tax. Your taxable income is increased by the interest on your bank deposits, which is then taxed at your individual tax rate. Therefore, debt funds are preferable if you want to reduce your tax obligations.

  • ✔️What is a good long term investment, FD or Debt Funds?

    Debt mutual funds' main advantage is that they are more tax-efficient as compared to FDs. When redeeming your debt funds with a holding period of three years or more, you may receive short-term capital gains.

  • ✔️Which can provide greater profits: FD or Debt Mutual Funds?

    The returns on debt MFs may be higher than the returns on FDs, which pay back the principal plus any interest that has accrued. Debt MFs offer an expected return of between 7 and 9 percent, while the projected return on FDs is between 6 and 8 percent.

  • ✔️What are the Tax benefits of Debt Mutual Funds vs Fixed Deposit?

    An FD account's interest is taxed at your slab rate. If the interest that is earned over the course of a financial year is greater than ₹40,000, the TDS rate on your FD would be 10%. Senior citizens, on the other hand, are eligible to deduct interest up to ₹50,000 annually. In debt mutual funds, short-term capital gains are taxed at the investor's marginal tax rate (assuming units are sold within three years).

  • ✔️Where should I invest: FD or Debt Mutual Funds?

    Debt funds can offer a dividend and have higher expected returns. Additionally, it offers good liquidity and low to medium risk. A fixed-term deposit (FD) is a low-risk investment with limited liquidity and no dividend option. Your needs will determine where you should invest.

  • ✔️What is the level of risk associated with debt funds?

    Since debt fund returns are market-dependent, investment in this strategy carries some risk.

  • ✔️Who should invest in debt funds?

    For investors with short-term or medium-term investing objectives, debt funds are suitable. Investors that have a high tolerance for risk may want to consider these funds. A person with extra money can put it into debt funds. For investors wishing to diversify their portfolio, debt funds are an alternative.

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