• Fixed Deposit versus Debt Mutual Fund

    If you have a sizeable amount of money saved up and your primary investment goals are:

    • To invest in a low risk, non-volatile, and safe avenue.
    • To see returns within 5 years.
    • To see at least an 8% - 9% rate of returns.
    Debt Mutual Fund Vs, Fixed Deposit

    Then you have two widely popular investment options open to you – Fixed Deposits (FDs) and Debt Mutual Funds (Debt Mfs). These are both investments that meet the above criteria, and have their own features which distinguish themselves from each other. The differences in the way these two investments work can be seen as advantages or disadvantages depending on the type of investor you are.

    Which is the better investment option? Fixed deposit or debt mutual fund?

    To answer this question, one must consider the following points, and evaluate the type of investor he or she is:

    1. Safety of Capital invested.

      • Fixed deposits:
        • Have a credit rating system (as shown in the table below) that classifies and segregates investments based on overall safety of the initial capital invested.
        • The classification and rating system takes into account various factors like commodities and securities or avenues being invested in, the duration, the current market status, its volatility, etc. and gives you a real picture of how your investment can be expected to perform and how safe your investment is.
        • Are guaranteed by the government up to the extent of Rs.1,00,000.
        • Rating

          Typically issued by:

          Safety Level


          The Government of India.

          Highest – no investment is safer than a "sovereign" investment.


          Banks, large private companies and PSUs.

          Very high – there is little likelihood that your investment will do badly.


          Private companies.

          High – these are tried and tested investments and consistently perform well.


          Private companies.

          Below average – you stand a very realistic chance of losing your capital.

          "BB", "B", "C" and lower

          Private companies.

          Poor – you will almost definitely lose your invested capital and have probably fallen victim to empty promises of huge returns.

      • Debt Mutual Funds:
        • Do not have a rating system, but the safety of the investment is gauged on the investment portfolio. Approximate investment safety levels are considered.
        • Involve a lot of diligent analysis simply to determine the safety of the investment.
        • Are not guaranteed by any authority to any extent.

        If you’re the kind of investor who has a high risk appetite and can afford to wager your savings – for a potentially huge benefit – but against staggering odds in an unstable financial market that’s littered with scams, then try your hand at debt mutual funds. You might get lucky.

        If you’re the kind of investor who falls in the majority category of those who wish to take a highly informed decision to invest hard earned capital in an established avenue of investment, which has a safety rating and is guaranteed up to Rs.1,00,000 – invest in fixed deposits.

    2. Premature withdrawal from investment.

      • Fixed Deposits:
        • Do not allow withdrawals before maturity. If a withdrawal is necessary, you will have to break your FD.
        • Few banks allow for partial withdrawal (or partial breaking), but in most cases the FD will have to be entirely broken.
        • Breaking a fixed deposit results in lower rate of interest and payment of penalty.
        • Penalties range from 0-15% of the initial invested amount.

      • Debit Mutual Funds:
        • Any amount can be withdrawn from the debit mutual fund account.
        • Amounts can be withdrawn at any time, and the mutual fund continues to function on the remaining amount.
        • There is no loss of interest rate.
        • Penalties are charged in the form of exit load, ranging from 0.25% - 1% and only applicable for periods less than one year.

        If you feel that you will need to break your investment before it reaches maturity and liquefy funds at short notice, then invest in debt mutual funds. But bear in mind that you will never receive the full benefit from any form of investment if you habitually break investments.

        If your investment pattern involves allowing all your well-planned and premeditated investments to fully reach maturity – and make full use of the huge maturity benefits – then invest in fixed deposits. Once an investment has been made, it is assumed that enough precautions and measures have been taken to allow for full returns.

        Keep in mind that any investment, if withdrawn halfway through, will never pay out as much as you had hoped.

    3. Rates of Returns on Investment.

      • Fixed Deposits:
        • Operate on the model of a fixed interest rate that’s communicated before you invest.
        • Current interest rates are around 8% - 9% (for investments > 1 year). This does not change due even in financial crises or volatility.
        • Enables financial planning.
        • Guaranteed return on investment.
        • Allows for calculation of an accurate amount of money that can be expected as total return on investment.

      • Debt Mutual Funds:
        • No fixed pre-communicated rate of interest.
        • Rate of interest must be guesses at based on previous fund performance and investment portfolio.
        • No guaranteed returns on investment.
        • Rate of returns are subject to market volatility and fluctuations in interest rates.

        If you are the type of investor who no desire to know what the end result of the investment will be, or wishes to take the chance at perhaps earning more due to fluctuations in the market which could raise the rate of returns – then invest in debt mutual funds. These funds do not earn interest, but earn dividends which could go higher or lower than you anticipate. Historical performance data, however, does not support the notion that returns will be high.

        If your idea of investment is to have full knowledge and awareness of exactly how much you’re investing, and how much you expect to receive as profitable returns, then invest in fixed deposits. These will give you a real picture of what to expect, and when to expect it. It also facilitates better financial planning, as you will already know how much the maturity amount is and how much you’ll be earning at the end of the term.

    4. Tax Liability.

    5. To understand the different taxes that apply on these investments, it’s important to understand the kind of return on investment they offer. Fixed deposits offer you return on investment in the form of interest, and Debt Mutual Funds offer return on investment in the form of capital appreciation or dividend. These two heads of income are taxed differently.

      • Fixed Deposits:
        • Attract a high rate of tax. Up to 30% depending on your personal tax rate.
        • Tax is applicable even on accrued interest which hasn’t been received yet.
        • Eventual income that compounds is lesser than in the case of non-taxed dividend income.

      • Debt Mutual Funds:
        • Attract the same rate of tax as FDs during the first year.
        • Taxed at a lower rate than FDs between the first year and third year.
        • Tax free from third year onwards.

        The reason that capital gains and dividend are taxed at a lower rate than interest income is because it is unsecured and a certain element of risk exists – bringing with it ambiguity about whether the investment will yield a profit or not. This risk is balanced by lower taxation, but leaves the investor open to the possibility of losing his investment. Interest income is taxed because it is a definite source of income which has been promised to the investor and has been secured up to Rs.1,00,000. A little taxation is a small price to pay for an investment that will almost certainly yield a profit and returns.

        If your investment strategy aims at saving on a little tax at the cost of exposing yourself to risk, invest in debt mutual funds.

        If your investment strategy aims at secured and guaranteed returns on investment from a high rated scheme, invest in fixed deposits.

    Overall, it should be noted that fixed deposits are the investment of choice for the majority of people who have investable amounts of savings, as it is a safer and more secure investment where funds are locked until they mature. It is ideal for those looking to park their funds and earn a decent amount of interest and benefits. Economic fluctuations do not affect the rate at which interest will accrue, as it is decided beforehand.

    Debt mutual funds, on the other hand, are investments which are less secure and can fail due to multiple reasons not limited to fluctuations in the economy. These investments are for those who can afford the risk in order to enjoy the slightly higher reward (when compared to fixed deposits). The primary advantages here are that you can liquefy your investment fast and at minimal cost, and can save on tax – at the cost of a risky investment platform.

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    Fixed Deposit versus Debt Mutual Fund Reviews

    • HDFC Bank Fixed Deposit
      "FD is not good with HDFC"
      0.5 4.0/5 "Great!"
      I have invested some money as a Fixed deposit in HDFC Bank and the interest rate is not that much great because they are giving interest as compared to others. I have invested the money of Rs. 3L and there is a locking period of 5 years. Its 7% interest rate. If they are increasing the interest rate, it would be fine. Since I do all my transactions with this bank, I have selected same for my FD as well.
      Was this review helpful? 3
      , bangalore
      Reviewed on Jan 31, 2020
    • SBI
      SBI Fixed Deposit
      "Good support"
      0.5 5.0/5 "Blown Away!"
      I have chosen my fixed deposit scheme from State bank of India because I'm maintaining my salary account with them and they provided rate of interest is fine for me. I have invested the money of Rs. 2.75 lakhs. There is a locking period of 45 days. They are giving interest rate of 4.5%. Overall, I'm satisfied with their services.
      Was this review helpful? 9
      , namakkal
      Reviewed on Jan 18, 2020
    • Kotak Fixed Deposit
      "Good App"
      0.5 5.0/5 "Blown Away!"
      I have been investing the money of Rs. 3 lakhs for the fixed deposit. I have selected Kotak mahindra bank for the FD because their net banking facility is very different when i compared to other. I can access everything regarding the account hence its easy to handle the transactions. I'm not sure about the interest rates. 7 months before, i have invested the money.
      Was this review helpful? 8
      , bangalore
      Reviewed on Jan 08, 2020
    • Kotak Fixed Deposit
      "Excellent Services"
      0.5 5.0/5 "Blown Away!"
      Its because of the competitive interest rates, i have selected the Fixed deposit in Kotak Mahindra bank. I have invested the fixed deposit 1.5 years ago and there is a lockin period of 5 years. They have invested the amount of Rs. 7.5 % and the employees are helpful in the branch.
      Was this review helpful? 2
      , mumbai
      Reviewed on Jan 08, 2020
    • Axis Bank Fixed Deposit
      "Good Savings scheme"
      0.5 4.0/5 "Great!"
      I have a Fixed deposit in Axis bank. I have invested the money of Rs. 10000 for two FDs. There is a lockin duration of 1 year. They are giving a interest rate of 7%. Through net banking, i have activated this Fixed deposit. There is no tax benefits available. Axis bank service has been good. Overall, I'm happy about their services.
      Was this review helpful? 5
      , kolkata
      Reviewed on Dec 31, 2019
    • Oriental Bank of Commerce Fixed Deposit
      "Good Scheme"
      0.5 5.0/5 "Blown Away!"
      Since last 15 years, i have a account with Oriental bank of commerce thats the reason i have invested the money in fixed deposit with the same bank. I have invested the amount of Rs. 11 lakhs. They are giving the interest rate of 6.5%. There is no locking period but i have chosen the duration of 1.5 years. There is no additional charges deducted for this fixed deposit.
      Was this review helpful? 14
      , bulandshahr
      Reviewed on Dec 03, 2019
    • Post Office Fixed Deposit
      "Good Service"
      0.5 4.0/5 "Great!"
      Interest rate is very low in Indian post office Fixed deposit scheme because they are providing only 8.5%. I have chosen this office because of the child benefits. I have invested the money of Rs. 1.5 years. Its 3 years lock in period. Overall, I'm satisfied with the service provided by post office employees.
      Was this review helpful? 44
      , parvathipuram
      Reviewed on Dec 03, 2019
    • SBI Fixed Deposit
      "Good bank for Fixed Deposit"
      0.5 4.0/5 "Great!"
      I have invested the money in SBI for a fixed deposit and based on my wife recommendation i have chosen it. They are providing the interest rate of 7.25%. They have option to select the lock in period in that i have chosen 5 years. We had visited their branch and the response was good.
      Was this review helpful? 25
      , mumbai
      Reviewed on Nov 12, 2019
    • HDFC Bank Fixed Deposit
      "Good one"
      0.5 4.0/5 "Great!"
      Its easy accessible and to redeem so that i have invested the money in Fixed Deposit with HDFC BANK. I have invested the money of Rs. 2.5 lakhs and they have provided me a interest rate of 7.5%. There is no locking period. I didn't got any additional charges till now.
      Was this review helpful? 15
      , hyderabad
      Reviewed on Nov 12, 2019
    • Post Office Fixed Deposit
      "Safety deposit"
      0.5 5.0/5 "Blown Away!"
      I have paid the money of Rs. 4.5 lakhs as a fixed deposit in the Indian post office. For the safety purpose, i have chosen the post office account. They are offering me a interest rate of 7.9%. There is a lockin period of 5 years. If i withdraw the money in 1 year, they will reduce the interest rate of 2% and after 3 years, its 1%.
      Was this review helpful? 80
      , jaipur
      Reviewed on Nov 08, 2019
    • Central Bank of India Fixed Deposit
      "Good Bank"
      0.5 4.0/5 "Great!"
      Interest rates are less in Central Bank of India so I had taken a fixed deposit. I have invested the money of Rs. 1 lakh in my wife's name. Branch is near from my place so I have chosen this bank. Yearly once, I get the money of Rs. 6,765 for the interest. There is a locking period of 1 year.
      Was this review helpful? 5
      , tirupur
      Reviewed on Nov 06, 2019
    • ICICI Bank Fixed Deposit
      "Customer centrice & User friendly app"
      0.5 4.0/5 "Great!"
      I am doing Fixed Deposit with ICICI BANK and its been around 5years. They haven't been paying good interest and its more or less same like other banks as I used to hold my salary account with ICICI, I have decided to be with one bank. There is no locking period and its flexible. They do give good support and the app is user friendly. Even deposit account can be opened through i-mobile or net banking itself.
      Was this review helpful? 11
      , nasik
      Reviewed on Oct 15, 2019
    • SBI Fixed Deposit
      0.5 3.0/5 "Satisfactory"
      I had a Fixed Deposit in State Bank of India, I have completed the tenure before 3months ago. I have no issues with the customer service. They are given me 7% interest rate for 2years. There is no profit and processing fee. I got an online access, where I can check the interest rate anytime on the YONO app or else SBI online.
      Was this review helpful? 19
      , tirupati
      Reviewed on Oct 15, 2019
    • SBI Fixed Deposit
      "Interest charges are good. "
      0.5 3.0/5 "Satisfactory"
      I have invested some money through FD. My salary account is in SBI so i have a zero ATM charges and the limit is not actually set by SBI. They do have short term FDs which is pretty good. I have invested the money of Rs. 60000 and the interest rate is 10.01% for the tenure period of 16 months. There is no lockin period. There is no hassle to getting the money back.
      Was this review helpful? 32
      , kolkata
      Reviewed on Oct 01, 2019
    • Dena Bank Fixed Deposit
      "Good plan for senior citizen"
      0.5 2.0/5 "Expected more"
      I have invested the money in Dena bank through Fixed deposit and the growth is not that much good. They are not taking any hidden charges. Only because of the Government undertaken bank, i have selected them. They are providing a interest rate of 6% per annum. I have invested the money of Rs. 2 lakhs. There is a lockin period of 1 year.
      Was this review helpful? 9
      , new delhi
      Reviewed on Sep 24, 2019
    • Axis Bank Fixed Deposit
      "Interest should be increased for FD"
      0.5 3.0/5 "Satisfactory"
      I have opt for fixed deposit for the tax saving purpose because I have chosen five years tenure with AXIS Bank, still its going on. Only once I Invested my money it has the locking period of five years. I have option to check my transactions through mobile app. But I have concern about the interest rate is very lesser for this FD.
      Was this review helpful? 13
      , hyderabad
      Reviewed on Sep 19, 2019
    • SBI Fixed Deposit
      "FD process should be simpler"
      0.5 1.0/5 "Really Bad"
      I had fixed deposit with SBI then I withdrawn the amount, I done Rs. 3 lakhs of investment on my daughter name then I taken the liquidity to purchase the land, at the time I struggled a lot to take that money because the process was difficult to withdrawn the money after seven months of tenure.
      Was this review helpful? 30
      , madurai
      Reviewed on Sep 03, 2019
    • Union Bank of India Fixed Deposit
      "Not good"
      0.5 3.0/5 "Satisfactory"
      I had a Fixed Deposit with Union Bank of India and its closed 18 to 19 months due to personal reasons. I am doing investment but my experience is not good with FD account. In my home town, there is no other banks so just decided to go with this bank. The returns are good.
      Was this review helpful? 11
      , bangalore
      Reviewed on Aug 28, 2019
    • HDFC Bank Fixed Deposit
      "Good to go with HDFC"
      0.5 5.0/5 "Blown Away!"
      I have one FD with HDFC, I deposited Rs. 1 lakh, I was opt for 45 days of tenure. Finally I got 6.25% of interest for 45 days. It won't cover the tax, if we need tax benefits we should go for five years term. I can track the details through netbanking, on the maturity date the amount credits automatically in the account. Even the notification can customized.
      Was this review helpful? 25
      , bangalore
      Reviewed on Aug 27, 2019
    • HSBC Bank Fixed Deposit
      "wrong calculation of interest rates"
      0.5 0.5/5 "Unacceptable"
      HSBC staff wrongly pre closed my fixed deposit .. and calculated the interest rates wrongly and when asked them for clarification never got back .. even after following up with them repeatedly for more than 3 months.. would highly recommend not using their services.
      Was this review helpful? 11
      , visakhapatnam
      Reviewed on Aug 24, 2019
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