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for Higher Returns & Tax Savings

Growth Funds

Tax Saving Funds

Fixed deposits (FD) are not just investments, they are a part of Indian tradition and culture. Our grandparents and parents have sworn by FDs for most of their lives. All bonuses went to FDs. Whenever they had to save money for a goal, they put it in an FD. It was the best option to earn on interest while ensuring capital protection.

Owing to its familiarity and institutionalized nature, an average Indian taxpayer has more trust in FDs. However, it seems they are not the most popular long-term investment anymore. This is thanks to the rising acceptance of mutual funds.

Mutual Funds were able to cash in on the 2015 demonetization due to steep spikes in deposits and reduced deposit return rates. Consistently delivering more than double returns and better tax-efficiency made it the favorite tool of investors. So, it doesn’t make sense to rely on bank fixed deposits when you have tax-saving mutual fund schemes that can double your money in the tenure you opt for FDs.

Shifting your money from an FD to debt mutual funds

Are you set on moving your money to mutual funds? If so, experts strongly recommend investing money in debt funds rather than equity or hybrid funds. To get the maximum benefit out of debt funds, decide a rough investment period you want to stay invested in.

A debt fund’s main goal is to give investors a steady income after the maturity period, and you must choose a time horizon in line with that of the fund.

You can find out about various debt funds and their duration directly from the fund houses or online or through a third-party. This will help investors understand a fund’s performance with respect to interest ad return rates, which makes it easier for you to avoid market volatility by making informed decisions.

Fixed Deposits Vs Mutual Funds

Here is a balanced and clear comparison to help you select a best-suited investment avenue to achieve your financial milestones. It is time to cut the debate short and tell you why.

Particulars Debt Mutual Fund Fixed Deposit
Investment tenure (minimum lock-in) 3 years 5 years
Rate of returns 14-18% 6-8%
Dividends YES NO
80-C tax exemption Up to 1.5 lakhs Up to 1.5 lakhs
Tax-efficiency of income Tax-free Taxed
Risk Mid-level to high-level risks Minimal risk
Inflation-adaptability Power of compounding ensures inflation-beating returns Low adaptability to inflation
Liquidity Higher liquidity Low liquidity
Investment options Both SIP and lump-sum investment options available Only lump-sum investment
Early withdrawal Allowed with or without exit load depending on the mutual fund type A penalty is levied to withdraw prematurely
Overall investment expenditure Fund house charges a fee – usually no more than 2.25% for equity funds and 2.5% for debt funds No management costs


Comparing the returns of FD and Debt Funds

Banks offer a pre-set interest rate for fixed deposits based on the tenure chosen (starting from 5 years). Debt fund returns are solely dependent on the market movement – they have historically earned higher returns (sometimes even more than double) in the form of capital appreciation on top of interest.

One good thing about fixed deposit is, market high and lows will not impact the returns you earn. So typically, debt funds outdo fixed deposits by a huge margin during market highs, and slightly underscore FDs when the market is down.

Comparing the tax-efficiency of FD and Debt Funds

The interest you earn from fixed deposits are taxed. Debt funds are not completely tax-free either. In fact, ELSS (with a lock-in period of 3 years) is the only mutual fund that doesn’t tax the income earned from it.

As for debt funds, if you withdraw them before the minimum tenure of 3 years, you will have to shell out short-term capital gains (STCG) tax at your tax slab rate. Regardless of your tax  slab, they will levy 20.6% long-term capital gains tax on you after 3 years.

Comparing the inflation-adaptability of FD and Debt Funds

Everyone knows that inflation puts a damper on savings as it leads to loss of currency value. Debt mutual funds, albeit the risk, have the potential to pace with inflation. For instance, you have invested in an FD at 7% interest and the inflation rate is 5%, the adjusted return would be a measly 2%. Debt funds deliver better.

Summing up with an illustration

Particulars Fixed Deposits Debt Funds
Invested Sum 2 lakhs 2 lakhs
Return Rate 9% 9%
Lock-in 1 year 1 year
Fund worth at the end of tenure 218000 218000
Inflation 8% 8%
Indexed Investment Sum 216000
Taxed Amount 18000 3000
Tax to be paid 6000 1000
Possible returns after tax 12000 17000


Ultimately, you should weigh your decision on your risk appetite, time horizon and investment goals. All we suggest is that when market looks positive and you notice several prospects for economic growth, it makes more sense to opt for debt funds than fixed deposits.

If you had invested Rs 10,000
every month for last 25 years
in equity funds, you could make

₹ 3.3 Crores
at 15%* annual returns

Rs 30 Lakhs

Rs 3.3 Crores

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