Keep these things in mind when switching from FD to Debt Mutual Fund

We all make investments to see our hard earned money get multiplied in future, but where should we put our amount to have the best result is really difficult to know.

Fixed deposits are generally taken as the most traditional way of investments, especially in case of senior citizens, but sad part is that this option has failed to provide higher returns if compared to debt mutual fund scheme.

Fixed Deposits

Banks allow an individual to open an FD account by depositing a sum of money for a fixed period of time, which may range between 1 month, 6 months, 1 year, 5 years etc.

You earn interest on your deposit made in the FD account. However, the interest rate which stood at 9% per annum on FD in 2013 has now come down to around 6.5% mark.

This has come as a bad news for citizens, who fall under 30% income tax bracket, as what they earned has come down to 4.5% per annum. They also need to pay tax, which is deducted at source from the interest on Fixed Deposits, as applicable, according to the Income Tax Act, 1961.

Generally, most people choose FD because this is considered to be safe investment, and it help them grow their financial assets without any exposure to volatility and other risks.

Debt Mutual Fund

Under this scheme, one can invest in a mix of debt or fixed income securities such as Treasury Bills, Government Securities, Corporate Bonds, Money Market instruments and other debt securities of different time horizons.

Debt securities also have a fixed maturity date and pay a fixed rate of interest. The returns on a debt mutual fund comprises -Interest income, Capital appreciation/depreciation in the value of the security due to changes in the market dynamics.

Considering the robust performance of mutual fund industry, debt instruments are usually expected to provide you returns in the range of 8% - 15%.

BankBazaar report suggests that rather than opting for FD and earning lower interest rate, one can get access to debt mutual schemes and enjoy better returns.

The report further says that a person needs to keep a list of factors in mind while switching to debt mutual fund scheme from fixed deposits.

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