It’s time to move beyond term deposits with debt mutual funds



Chances are, your grandmother or even your mother would at some point have advised you to invest your money in a bank term deposit. The reason is always the same, ‘for sure’. Over the years, the rates offered on bank deposits have varied and ranged from 4% to 12%. When you invest in term deposits, you are assured of a certain return and the safety of your investment. This is why most people choose to invest in term deposits. However, there is another option available for investors looking for relatively low risk investments. These are debt mutual funds. Before we understand which investment option might be the best, let’s understand the key factors behind each.

Fixed deposit Common Debt Fund
To define When you invest in an FD, you invest a lump sum in a deposit plan at a fixed interest rate and for a specified period. A debt mutual fund invests your money in fixed income securities such as government securities, debentures, corporate bonds, and other money market instruments.
Period of time
The investment period can range from 7 days to 10 years (some institutions even offer 20 years) Can go from night to over 10 years
You benefit from a fixed interest rate depending on the period for which you wish to invest The returns you will earn will vary depending on the type and length of the program selected.
Risk Very low risk since the return is known at the start of the investment. However, it may be subject to the risk of inflation The risk is low to moderate depending on the instruments in which your chosen system invests
Liquidity If you choose to withdraw or close the FD before the end of the investment term, you will be charged a penalty fee. These are very liquid and you can withdraw your money at any time by redeeming the investment.
Investment choice
You have a limited choice because the interest rates are set according to the interest rates in the economy You have the choice to invest over time periods, risk profiles and potential returns
Taxation You will be taxed according to your income tax slab. You will be taxed according to your income tax bracket if you hold the investment for less than 36 months. For investments held for more than 36 months, the tax is 20% with indexation
Investment frequency
Lump sum investment You can make a lump sum investment or start a systematic investment plan (SIP). A SIP allows you to invest a fixed amount of money in your preferred plan at times that are most convenient for you. In addition, a SIP can be started with a minimum of Rs. 500
It can help you achieve some of your short and long term goals depending on the investment period. However, offers limited growth opportunities It can help you achieve some of your short and long term goals depending on the investment period. In addition, you also have the opportunity to grow your money and move higher on the risk curve to generate higher returns.

Why You Should Consider Investing In Debt Mutual Funds Rather Than Term Deposits
Debt mutual funds are an ideal option for investors looking for security and the potential for higher returns.

  • Risk: When you invest in term deposits, you do so on the premise that the investment is risk free. However, this is not the case. There is always a risk of inflation. Interest rates on these instruments are fixed while interest rates, and therefore inflation, in the economy keep changing. There is always the risk that the inflation rate will be higher than the fixed deposit rate. So, despite some returns, the value of silver might not increase at the rate of inflation.
  • Taxation: If you are a short-term investor (less than 3 years), then the tax difference will have no impact. However, if you are a long-term investor, especially one in the top 30% tax bracket, investing in debt mutual funds is much more tax-efficient. .
  • Investment choice: Debt mutual funds will give you the ability to invest within time frames and risk-return profiles. If you are looking to generate potentially higher returns, you can put your money in debt mutual funds that invest in higher risk companies. On the other hand, if you are looking to invest in low risk instruments, you can invest in funds exposed to government bonds.

So while term deposits have been a favorite investment choice for millions of Indians, it’s time you gave mutual funds a chance. They offer the benefits of fixed deposits and more.

An investor education initiative by Edelweiss Mutual Fund
All mutual fund investors must go through a unique KYC process. The investor should only deal with registered mutual funds (RMFs). For more information on KYC, RMF and the procedure for filing / redressing any complaint, visit –

Investments in mutual funds are subject to market risks, carefully read all documents relating to the plan.


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