FD Vs Debt Funds: If you prefer safe investment, then you can choose debt fund instead of FD. It is considered a safe option for investing in mutual funds. It can give you much better profit than FD.
FD Vs Debt Funds: Nowadays there are many investment options in which the investor invests by looking at his convenience and benefits. Some investors hesitate to take risk in their investment. Of course the return may be a little less, but it is more important for them that their investment remains safe. Such investors mostly include FD in their portfolio.
But if you can take a little risk, then you can also choose the option of debt fund instead of FD. Especially when you want to invest only for a short period of 2 to 3 years. In such a situation, you can choose debt fund in mutual fund. Debt funds are considered to be the safest option among mutual funds and have the potential to give much better returns than FDs. Let us tell you its benefits.
Know what is a debt fund?
In debt funds, the money taken from investors is invested in fixed income securities such as bonds, government securities, treasury bills and non-convertible debentures etc. That is, the money of debt funds is invested in a safe place. Debt funds are considered safer than equity. There is also no problem of liquidity in it, that is, you can withdraw your money whenever you want. Usually debt funds have a fixed maturity date.
Better returns than FDs
If you look from the point of view of profit, debt funds can give you slightly better returns than FDs. Usually, you get 6 percent to 7 or 7.5 percent interest on FDs of 1 year to 3 years. But the return of debt funds is considered to be around 9 percent. In such a situation, you can earn more profit by investing in debt funds. However, investors should not expect high returns like equity in debt funds.
Tax rules on FD and Debt Funds
Talking about tax, there is a provision of tax on profits from Debt Funds. Short term capital gain tax has to be paid on the profit made by selling debt mutual fund units before 3 years. You will have to pay tax on the gains as per the income tax slab. On the other hand, if we talk about FD, 5-year FD is tax free. You have to pay income tax on FDs of lesser duration than this.
(Disclaimer: Investments in mutual funds are subject to market risks. Before investing, do your own research or consult your advisor.)
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