Fixed Deposits vs. Debt Funds: In moderate investment schemes, debt mutual funds and fixed deposits are two of the most popular options. Although they differ in how they generate returns, how they are taxed, and what flexibility they provide, both are safer than stocks. Before choosing one that best suits your financial objectives, it is important to understand which one gives you better returns.

Fixed Deposits:

Fixed Deposits (FDs) trusted medium for people who want fixed returns with assurance. This is completely trusted and has guaranteed returns. Even though the market has some ups and downs, the bank guarantees a fixed rate of interest till the duration of the investment is complete. For risk-averse savers in particular, they become dependable and certain.

Debt Funds:

Debt funds differ completely from fixed deposits. They collect money from investors and invest it in government securities, corporate debt, and the market. These funds do not offer guaranteed interest because market fluctuations affect returns. While debt funds provide stable and relatively high returns, they also carry some risks.

Fixed Deposit Liquidity and Flexibility:
If you are thinking about liquidity and flexibility, fixed deposits have a lock-in period. This lock-in period is going to decide the interest amount. The interest amount and the principal amount can be withdrawn after the maturity.

Also Read: Can You Get a Credit Card Without a Bank Account?

Debt Funds Liquidity and Flexibility:
Debt funds have more liquidity and flexibility compared to fixed deposits. Investors who have invested in debt funds can withdraw their money at any point in time, and the money will also be credited in one working day. The key point to be noted is, there won’t be the same value of returns, as this is completely dependent on the market situation.

Tax on Fixed Deposits:
Interest on Fixed Deposits is subject to 30% taxation at your tax slab rate and is included in your income. For people in higher tax brackets, this reduces their after-tax return.

Tax on Debt Funds:
Tax on debt funds is subject to capital gains taxes. Gains are short-term and subject to tax at your slab rate if you offset them within three years. They are eligible for long-term capital gains tax with indexation benefits if you have owned them for longer than three years.

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