FDs are unlikely to fetch high returns but as against some of the experts have also proposed an increase in these instruments as the liquidity is about to tighten and credit off take has increased in several months for the first time. Also, stock markets have reached their peaks and it is likely that correction happens any time soon.
So if you as an investor are scared to put all your funds in equity given the landscape and still want to take a dip to reap better gains, debt mutual funds can be a good option.
Here are a few things to remember before partaking your bets in this asset class
Debt fund is better than FDs tax wise here's how:
In debt fund's where an investment is made towards money market instruments earns you some fixed interest and income by way of capital gains which are taxed depending your holding.
Say if you hold the investment for less than three year or three years, taxation as per your slab is levied while in the other case when the holding period is over 3 years, the levy is 20% as LTCG on debt mutual funds.
This is more tax efficient as the TDS on interest amount on FDs is also deducted.
So, whether you are planning for a short term investment of three years or more, debt Mfs are better given the indexation benefit which provides for the inflation rate.
Also, a thing of noticeable concern is that partial redemptions or withdrawal request are not entertained in case of bank FDs while than can be made in case of mutual funds.
Another point to be kept notice of on FDs interest is taxable or accrued interest is taxed on a year on year basis while for mutual funds the redemption arises the tax implication.