Bank FDs outscore debt funds by way of capital safety and revenue certainty. The booked rates of interest of financial institution FDs stay the similar all through the FD tenure, regardless of modifications in the FD charges in the interim. FDs opened with scheduled banks additionally qualify for the depositor insurance coverage program of DICGC, an RBI subsidiary. This program covers cumulative financial institution deposits (together with financial savings, mounted, present and recurring deposits) of up to Rs 5 lakh of every depositor with every scheduled financial institution in case of financial institution failure. Hence, these having deposits with a number of scheduled banks will qualify for the depositor insurance coverage cowl with every of the banks.
Despite having decrease threat than fairness funds, debt mutual funds can’t assure capital safety as their portfolio constituent securities are inclined to rate of interest threat and credit score dangers. Debt funds additionally can’t present revenue certainty as their returns are a sum of capital appreciation/erosion and coupon revenue generated by their portfolio constituents.Â
Bank FDs additionally outscore debt funds by way of funding price. Bank FDs don’t cost any payment for opening and sustaining mounted deposits. The working, administrative and different bills incurred by debt funds are expressed in the type of expense ratio and are recovered from the buyers by deducting them from the fund’s AUM.
Most of the financial institution mounted deposits, barring tax saving FDs, enable untimely withdrawals. However, most banks often cost a penalty of up to 1% on untimely withdrawals. In case of debt funds, apart from the mounted maturity plan, buyers are free to redeem their debt funds any time after funding. However, some debt funds might levy exit load on redemption earlier than pre-set timelines.
Debt funds often beat financial institution FDs by way of returns. Debt funds primarily spend money on mounted revenue securities traded in the bond and cash markets, which often supply increased threat premium than financial institution FDs.
Debt funds additionally outscore financial institution FDs by way of tax therapy, particularly for these falling in the increased tax slab and people with funding horizons exceeding 3 years. The capital beneficial properties from debt funds booked inside 3 years are taxed as per the tax slab of the investor whereas the capital beneficial properties booked after 3 years are taxed @ 20% after indexation. The curiosity revenue generated by financial institution FDs are taxed as per the depositor’s revenue tax slab.
Bank FDs beat debt funds by way of capital safety, revenue certainty and funding price whereas debt funds beat financial institution FDs by way of returns, tax therapy and liquidity.
(Expert feedback by Sahil Arora – Director, Paisabazaar.com)
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