Debt Mutual Funds vs Fixed Deposits: Are debt funds a better choice for higher returns and early withdrawal? (2024)

FAQs

Debt Mutual Funds vs Fixed Deposits: Are debt funds a better choice for higher returns and early withdrawal? ›

1. Higher returns: The first and the foremost reason to choose a debt fund over an FD is that Debt Mutual Funds do have the potential to give slightly higher returns than a traditional FD. 2. Safe Investment: The main reason why an FD was chosen over other modes of investment was for its safety.

Debt mutual funds offer marginally higher returns than by fixed deposits (FDs). At the same time, interest given by FDs are relatively more stable. There are 16 sub-categories of debt mutual funds such as overnight funds, liquid funds, money market funds, short duration and medium-duration funds.

Stock mutual funds, also known as equity mutual funds, carry the highest potential rewards, but also higher inherent risks — and different categories of stock mutual funds carry different risks.

Also, fixed income MFs do not offer assured returns as the returns are market linked and can fluctuate. Debt mutual funds are fixed income mutual fund schemes which invest in debt and money market instruments like Commercial papers, debentures, T-Bills and government securities etc.

It depends on your financial goals and risk appetite. If you are looking for an investment with low-risk exposure, fixed deposits would be the safer bet for you. However, if you are looking for reasonable returns alongwith high risk, you should consider investing in mutual funds.

Which is better debt fund or equity fund? The choice between debt and equity funds depends on individual investment goals, risk tolerance, and time horizon. Equity funds offer higher potential returns but come with higher risk, while debt funds are safer but offer lower returns.

Quant Small Cap Fund(G) tops the chart with over 39% returns followed by Quant Mid Cap Fund(G), Nippon India Small Cap Fund(G), Quant Flexi Cap Fund(G) and Motilal Oswal Midcap Fund-Reg(G) in the same pecking order. 1.

What is the average return on debt mutual funds? ›

The U.S. stock market is considered to offer the highest investment returns over time. Higher returns, however, come with higher risk. Stock prices typically are more volatile than bond prices.

Public Provident Fund (PPF) PPF is a government-backed long-term investment option for risk-averse investors to earn fixed interest rates decided every quarter by the Finance Ministry. The minimum tenure of a PPF account is 15 years, extendable in blocks for five years after that.

Low Risks. Since debt mutual funds are less risky than equity funds, allocating a portion of an investment portfolio to the best-performing debt funds minimizes risk and adds stability. Tactical investments in these funds are effective for capitalizing on short-term yield opportunities.

Fixed income mutual funds act as a less risky investment option than an equity mutual fund because of the fact that equity funds can be extremely volatile due market fluctuations. Therefore, fixed income mutual funds help you create a diversified portfolio while helping you drastically bring down the overall risk.

Unlike Equity Funds, Debt Funds are considered low risk and are ideal for conservative investors seeking stable returns. They offer liquidity, ease of investment and diversification across various debt instruments. However, Debt Funds are subject to interest rates and credit risk.

Debt mutual funds are considered to be relatively less volatile than equity mutual funds. While this may be true, especially over a long time, the probability of negative returns cannot be ruled out in the shorter term.

While term deposits may seem like a safe option, bond funds can offer greater liquidity, diversification, and potential for capital appreciation. Volatile markets and rising interest rates have led to major asset allocation shifts over the past year.