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Are debt funds like Fixed Deposits

Is investing in Debt funds like investing in FDs?

Are debt funds like Fixed Deposits

Is investing in Debt funds like investing in FDs?

Conservative investors traditionally bat for fixed deposits (FDs). The argument is that they offer guaranteed interest payout and principal protection. However, there is another breed which bats for debt mutual funds, talking about tax efficiency and better returns. Who is right? Let’s find out.

Timeless fixed deposits

Bank fixed deposits have been the savings instrument of choice for decades. Known for being the safest investment avenue, bank fixed deposits offer the comfort of principal protection and guaranteed interest. Nothing is market linked in terms of original investment and interest. So, once you open an FD, you are reasonably sure of the capital coming back to you along with the promised rate of interest, provided the bank itself does not fail It is a simple yet effective way for conservative savers to generate returns. With FDs, it is possible for you to get pre-tax returns in the range of 7%. This is why savers of yesteryears and even a large population today still prefer fixed deposits. Check out fixed deposit options at Standard Chartered here.

Date with debt

There are no guarantees in debt funds. Returns are market-linked. The debt fund investor is fully exposed to defaults or any other credit defaults by the companies whose debt securities are being invested in. In practice, debt funds carry more risk than FDs. But, debt funds have advantages of their own. Firstly, debt funds score on taxation if they are held for more than 36 months. Indexation can reduce the taxes from 20% level to much lower. In the case of bank FDs, interest income is added to normal income and taxed at your slab. So, for those in higher tax slabs, debt funds are tax efficient. Two, debt funds have the potential to give better returns as compared to than bank FDs. The higher returns are as a result of debt funds taking higher risk. Want debt fund ideas? Check out Standard Chartered’s Online Mutual Funds platform.

The fixed deposit (FD) dilemma

Even if you earn good interest rates with bank Fixed Deposits, there are some issues that you have to deal with.

Firstly, there is TDS or Tax Deducted at Source in case of FDs. Usually, banks deduct TDS on interest income from fixed deposits when interest from one FD or sum of all FDs with the bank is more than the threshold amount of Rs 10,000 in a year. On the other hand, there is no TDS on debt mutual funds. To make your FD of your choice with Standard Chartered, click here.

Two, bank FDs proceeds are available at 1-2 days notice. If you close the FD online, sometimes the money can come in the next few hours or they can take 24 hours too. If you withdraw an FD before its maturity, there could be a penalty as well. In the case of some debt funds like liquid schemes, money can be instantly withdrawn online, usually in minutes. They can also take a period of 2-3 working days. Some debt funds carry an exit load, which is a charge the investor has to pay in case they redeem their investment before a stipulated time. However, most liquid funds have no exit loads.

Fund fuss

Despite debt funds being largely managed well, debt funds are vulnerable to both credit risk and interest rate risk, returns can drop and be negative, at least in the short term. This has happened on more than one occasion. So, debt fund investors should be prepared to face the prospect of poor returns if the selection of investments in the fund is not good.

But, debt funds can generate far superior returns, especially when adjusted for taxes. If you need help in buying debt funds, start an investment relationship with Standard Chartered now. You will need a Standard Chartered savings account, an investment account and a valid investment profile before you can start investing., You can also view fund ideas in line with your risk profile. In the alternative, if you are clear on the fund you want to purchase and understand the risk and returns, you can purchase the fund of your choice using Online Mutual Funds.

Like all age-old arguments, you have not heard the end of the bank FD versus debt funds battle. There are pros and cons on both sides. For investors and savers, it is best to build a fixed income portfolio by having a good allocation to both FDs and debt funds, instead of choosing one against the other. When combined, FDs and debt funds cancel out each others’ weakness and give you a stronger portfolio both in terms of returns and stability.


This document is for information and educational purposes only. It is meant only for use as a reference tool. It has not been prepared for any particular person or class of persons. The products and services may not be suitable for everyone and should not be used as a basis for making investment decisions. This document does not constitute investment advice nor is it an offer, solicitation or invitation to transact in any investment or insurance product. The value of investments and the income from them can go down as well as up, and you may not recover the amount of your original investment. Prior to transacting, you should obtain independent financial and tax advice. In the event that you choose not to seek independent professional advice, you should consider whether the product is suitable for you. You should refer to the relevant offering documents for detailed information.

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Mutual Fund Investments are subject to market risk. Read scheme related documents carefully prior to investing. Past performance is not indicative of future returns.

The Online Mutual Funds platform is an EXECUTION-ONLY platform. If you wish to receive advice from us in relation to transacting in Mutual Funds, you should not use the Online Mutual Funds Platform but should instead contact your banker for further information. We are not acting as your investment advisor nor providing investment recommendations in respect of any transaction effected through the Online Mutual Funds platform, and you must not regard it or us as acting in that capacity. You should consult your own independent legal, tax and investment advisors before entering into any transaction via the Online Mutual Funds platform and only enter into a transaction if you have fully understood its nature, the contractual relationship into which you are entering, all relevant terms and conditions and the nature and extent of your exposure to loss.

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