Top 5 Fixed Deposits

Below is the list of top five fixed deposits offered by banks in India.

Name of Fund 3 Year Returns (p.a.) Scheme Category
ICICI Banks 6% Fixed Deposit
State Bank of India5.70% Fixed Deposit
HDFC Bank6.15% Fixed Deposit
Punjab National Bank6.29% Fixed Deposit
Axis Bank6.50% Fixed Deposit
The investor can invest in fixed deposit for a fixed tenure and fixed rate of return. These are issued by the banks and is considered to be one of the safest options.

Meaning and Benefits

Fixed Deposit is a financial investment tool that gives you a fixed interest until the maturity date. As compared to the savings account, it comes with a higher rate of interest.

FD brings a lot of benefits to the table for investors. Here are some of them.

  • FD is a risk-free investment option that is not market-driven. This means that if you invest your money in a fixed deposit account, you will get assured returns.
  • It allows flexibility in choosing how you wish to receive the interest amount. It can be annually, monthly, or during maturity.
  • During a financial crunch, taking a loan against your FD can help you to a great extent. Banks in India provide loans from 60% to 90% of the Deposit at present.

How does a Fixed Deposit work?

In fixed deposits, you invest your funds for a fixed period and earn interest on the principal amount deposited. FD provides flexible tenure, which ranges from 7 days to 10 years. You can choose the desired term based on your business or personal needs. Further, the rate of interest depends on the term. It is pre-determined by the banks and remains the same throughout the tenure. On the maturity date, the bank credits the principal and interest amount to the investor's bank account.

You can also withdraw funds before maturity, but premature withdrawal comes with a lower interest rate and attracts penalties.

How to open a Fixed Deposit account?

You can open an FD account either online or by going to the bank (public/private) branch directly. You only need to fill a form and submit the necessary documents. The minimum amount required for an FD varies from bank to bank. The maximum amount you can invest in an FD has no restrictions.

What are the documents required for a Fixed Deposit?

The mandatory documents required to open an FD account include:

  • Identity proof - Aadhar card, PAN, passport, voter ID card, driver's license, etc.
  • Address proof - Passport, electricity bill, bank statements, etc.
  • Signature proof - PAN card, driver's license, passport, etc.

Can we open a Fixed Deposit without a bank account?

Many investors may not be aware of the fact that some banks allow opening FD accounts without having a savings bank account. But, you will be required to submit the documents like identity proof, address proof, etc., along with the application form and undergo the know-your-customer (KYC) process.

Top 5 Debt Mutual Funds

Below is the list of best performing Debt mutual funds to invest in India.

Name of Fund 5 Year Returns (p.a.) Scheme Category
Axis Short Term Fund 7.56% Short Duration Fund
HDFC Short Term Debt Fund7.94%Short Duration Fund
HDFC Corporate Bond Fund8.14%Corporate Bond Fund
DSP Government Securites Fund9.31%Gilt Fund
ICICI Prudential Credit Risk Fund9.38%Credit Risk Fund
These funds are alternative to fixed deposit.You can invest in Gilt funds,corporate bond funds,credit risk funds based on your risk appetite and time horizon.

Meaning and Benefits

Debt Funds are those mutual funds that invest in fixed-interest generating securities, such as corporate bonds, treasury bills, government securities, and more. Even though these funds are subject to market volatility, they are less risky than equity funds.

Some of its key benefits are explained below.

  • Debt Funds are secure options for new and conservative investors as they invest in fixed securities and hence offer steady cash flow without worrying about the market crashing.
  • They generate lower but relatively stable returns, thus providing balance and predictability to your portfolio.
  • These funds seek to gain capital appreciation and help investors in achieving their short-term financial goals.
  • In case of emergencies, you can redeem debt funds at the current NAV and get the maturity proceeds within 1-2 working days. In some debt funds life liquid/overnight funds, there are no/very less exit loads.
  • Tax friendly long term returns as the gains from debt mutual funds are not added to the income , rather it is 20% of the capital gains with indexation.

What is the tax incidence on investing in debt mutual funds?

Mutual funds are tax-friendly options, where the tax incidence arises only upon the redemption of the MF scheme. In the case of debt funds, taxation depends on the holding period. If the capital gains are earned within three years, they are taxed as per tax slab rates of investors. Long term capital gains, made after holding period of three years, are taxed at 20% post indexation.

Which is a better instrument, and why?

Both fixed deposit and debt mutual funds serve a similar purpose but differ in various aspects. Let us look at the comparison so that you figure out which one is best for you.

  • Returns: Since FD is independent of market fluctuations, it offers guaranteed returns to its investors. Debt funds depend primarily on the interest rate movement, and thus, do not provide fixed returns. This is why debt funds have more potential to generate higher returns than FD.
  • Risk factor: FD is the safest avenue for risk-averse investors. It involves negligible risk since the interest rate remains fixed for the overall tenure. In a debt fund, the rate of return depends on the performance of the underlying securities. You can invest in debt funds holding AAA rated securities so as to generate more returns with the same amount of risk involved as we have in FD.
  • Liquidity: Debt mutual funds surely score higher in case of liquidity because these funds can be redeemed anytime on a T+1 or T+2 basis. However, there is a marginal exit load, which is usually around 1% and is only applicable for a period of less than one year. Fixed Deposits, on the other hand, charge a penalty for premature withdrawals, which is around 0.5%. It means you will get 0.5% less interest than the contractual rate.

Overall, keeping the above pointers in mind, the choice between fixed deposit and debt mutual fund depends entirely on your preferences. But, from the point of returns,taxation,liquidity,ease of operations, debt mutuals are more preferred investment vehicle than fixed deposit.

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Investment in mutual funds or any asset class comes with an inherent risk. This is just a web-based tool for getting a rough estimate about the future value of your SIP/lump sum investments. The calculations are based on projected annual returns and periods. The actual annual returns may be higher or lower than the estimated value and it may have a significant impact on the final returns/goals.
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