Debt Funds Vs Fixed Deposit

Debt funds and fixed deposits (FDs) are both investment options that offer investors a steady stream of income. However, they differ in their risk-return profile and investment structure. Debt funds are a type of mutual fund that invests in fixed-income securities, such as government securities, corporate bonds, and other money market instruments.

With Fixed Deposits, you deposit a lump sum of money with the bank for a predetermined period, which can range from a few days to several years. You earn a fixed interest rate on your deposit, which is locked in at the time you open the FD. At the end of the fixed term (maturity), you get back your original deposit amount along with the accumulated interest.

The minimum deposit amount required to open an FD account can vary depending on the bank and the type of FD. However, it is usually possible to find FDs with a minimum deposit amount of Rs.5,000 or Rs.10,000.

Many debt funds allow you to start investing with as little as ₹500 or ₹1000 through a lump sum investment. Some funds might allow SIPs to start at just ₹100 or ₹500 per month.

Debt Mutual Funds Vs FD

Investors who are looking for a steady income and relatively low risk often find themselves weighing the merits of two popular investment options: debt funds and fixed deposits (FDs). Although both investment options offer regular returns, they differ significantly in their structures, risk profiles, and potential rewards.

Let's compare Debt Funds and Fixed Deposits to help you make a well-informed decision.

Feature Debt Funds Fixed Deposits (FDs)
Returns Potentially higher returns, but not guaranteed Fixed and guaranteed returns
Risk Lower risk than Equity Funds, but higher risk than FDs Low risk, considered a safe investment
Liquidity Varies depending on the fund type (open-ended vs closed-ended) Typically lower liquidity, with penalties for early withdrawal
Interest Rate Market-linked, can fluctuate Fixed and predetermined
Investment Horizon Wide range of maturities (ultra-short term to long term) Generally shorter than Debt Funds

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Note: Debt Funds are suitable for investors seeking regular income and potentially higher returns than FDs, with a tolerance for some level of risk. Fixed Deposits are ideal for investors prioritizing guaranteed returns and capital preservation, even if it means lower potential returns.

Debt Funds

Debt funds, also referred to as fixed-income funds or bond funds, are a type of mutual fund that invests in fixed-income securities. These securities are essentially loans that investors make to governments and companies, with the promise of receiving interest payments in return.

Debt funds pool money from various investors and use it to purchase fixed-income instruments like government bonds, corporate bonds, commercial papers, and treasury bills. The bonds and other securities held by the fund generate regular interest income, which is distributed to the fund investors. Sometimes, debt funds may also buy and sell these fixed-income securities before their maturity. If the price of the security has gone up since purchase, the fund can earn a capital gain.

Did you know that you can get a loan against your mutual fund investment. Your investment will be treated as collateral to get a loan.

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Features of Debt Funds

Debt funds, also known as fixed-income funds or bond funds, have gained significant popularity among investors seeking regular income and diversification in their portfolios.

Let's understand the key features of debt funds that become essential in making informed investment decisions.

Feature Description
Lower Risk Compared to equity funds, generally less volatile
Regular Income Distributes interest income from holdings at periodic intervals
Variety of Maturity Periods Offers options from ultra-short-term to long-term to align with goals
Liquidity May have lock-in periods, but many are redeemable within a short timeframe
Potential for Capital Gains Can earn capital gains if securities are sold before maturity and price increases

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Fixed Deposits (FDs)

Fixed Deposits (FDs) are a type of investment offered by banks and non-banking financial institutions (NBFCs) that allows you to invest a lump sum of money for a predetermined period at a fixed interest rate. When you invest in an FD, the financial institution guarantees you a specific return on your investment and returns on your principal amount at the end of the tenure.

FDs are generally considered a safe investment option often backed by deposit insurance schemes offered by the government. They offer fixed interest rates, so you know exactly how much you will earn on your investment. Interest earned on FDs can be credited to your account regularly or compounded. Early withdrawals typically come with a penalty, and the interest earned is taxable income.

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Features Of Fixed Deposits (FDs)

Fixed deposits (FDs) have long been a trusted popular investment choice for individuals seeking a low-risk avenue to grow their savings. They provide a predetermined rate of interest over a fixed tenure, making them an attractive option for conservative investors.

The table below showcases the key features of fixed deposits that are crucial for investors to make informed decisions.

Feature Description
Guaranteed Returns Earn a fixed interest rate on your investment
Variety of Tenures Choose a term length that suits your needs (from days to years)
Interest Payment Options Receive interest payouts regularly (monthly, quarterly, annually) or compounded and paid at maturity
Limited Liquidity Early withdrawals come with penalties. Newer options offer more flexibility.
Minimum Deposit Requirement Varies depending on the bank and FD type

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Debt Fund Calculator

Although there is no separate calculator for Debt Funds, a standard mutual fund calculator can work well for debt funds. Here's a breakdown of what you can expect from a debt fund calculator.


  • Investment Type: Lump sum or SIP (Systematic Investment Plan)
  • Investment Amount: The amount you're investing initially (lump sum) or per installment (SIP)
  • Investment Tenure: The duration for which you'll invest (in months or years)
  • Expected Rate of Return: This can be based on historical data of the specific debt fund you're considering or an advisor's suggestion. Debt funds generally offer lower returns than equity funds but are considered less volatile.


  • Maturity Amount: This is the estimated amount you'll receive at the end of your investment tenure, including your principal investment and returns.
Note: These calculators provide estimates only. Actual returns may differ based on factors like interest rate fluctuations and the fund's performance.

FD Calculator

An FD calculator, also known as a Fixed Deposit calculator, helps you estimate the maturity amount you'll earn on your Fixed Deposit (FD) investment.

Maturity Date :  
Invested Amount :  ₹10,000
Interest Amount :  ₹666
Maturity Amount :  ₹10666

Here's how Fixed Deposit works.


  • Investment amount: The principal amount you plan to deposit in the FD.
  • Interest rate: The interest rate offered by the bank or NBFC for your chosen FD scheme. This could vary depending on the deposit amount, tenure, and your customer profile (senior citizen or regular).
  • Tenure: The period for which you'll lock your investment. FDs typically range from 7 days to 10 years.
  • Interest payout frequency: Choose between cumulative (interest earned gets added to the principal) or non-cumulative (interest paid out periodically).


  • Maturity amount: This is the total amount you'll receive at the end of the FD tenure, including your principal amount and the accrued interest.
  • Interest earned: This is the total interest you'll earn over the FD tenure.
Note: Interest rates are subject to change, and these calculators provide estimates only. It's always a good idea to verify the latest rates with the bank or NBFC before finalizing your FD investment.

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Steps to Open a Debt Fund Account

Debt funds are a type of mutual fund that invests in fixed-income securities like bonds and government securities. Debt funds provide stable returns with lower risk than equity funds. Opening a debt fund account is a simple process that can be done online or offline.

Let's take a look at the steps to open a Debt Fund account.

Opening a Debt Fund Account Online

  • Step 1: Research and select a reputed mutual fund company that offers debt funds.
  • Step 2: Go to the mutual fund company's website and look for the online account opening process or the "Open an Account" section.
  • Step 3: Fill in the online application form with your details, such as name, address, contact information, PAN card details, and bank account details.
  • Step 4: Upload scanned copies of your KYC (Know Your Customer) documents, such as your PAN card, address proof, etc.
  • Step 5: Select the debt fund(s) you wish to invest in and specify the investment amount.
  • Step 6: Make the initial investment payment through online payment modes like net banking, debit card, or UPI.
  • Step 7: Review and accept the terms and conditions, risk disclosures, and other necessary declarations before signing up the account.
  • Step 8: Upon successful submission, you will receive an acknowledgment and account details from the mutual fund company.

Opening a Debt Fund Account Offline

  • Step 1: Locate the nearest branch office of the mutual fund company or an authorized distributor.
  • Step 2: Obtain the account opening form from the office or distributor and fill in your personal and financial details.
  • Step 3: Submit self-attested copies of your KYC documents, such as your PAN card, address proof, and others, as required.
  • Step 4: Specify the debt fund(s) you wish to invest in and the investment amount.
  • Step 5: Submit the completed application form, along with the initial investment amount, to the authorized personnel.
  • Step 6: The payment can be made via cheque, demand draft, or cash (subject to limits).
  • Step 7: The mutual fund company or distributor will provide you with an acknowledgment receipt for your application and payment.
  • Step 8: Your account will be activated, and you will receive the account details from the mutual fund company within a few days.
Note: Mutual fund investments are subject to market risks, and you should carefully review the scheme information documents and consult a financial advisor, if necessary, before making investment decisions.

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Steps to Open a Fixed Deposit (FD) Account

A fixed deposit (FD) account is a type of investment offered by banks and financial institutions that allows you to earn higher interest rates than a regular savings account. By committing your funds for a specific tenure, known as the lock-in period, you can benefit from attractive returns while enjoying the safety and security of a low-risk investment option.

Let's take a look at the typical steps to open a Fixed Deposit (FD) account, both online and offline.

Online Process to Open FD Account

  • Step 1: Visit the website of the bank where you want to open an FD account.
  • Step 2: Look for the option to open a new Fixed Deposit account under the Deposits or Accounts section.
  • Step 3: You may need to register and log in to the bank's Internet banking portal if you don't have an existing account with them.
  • Step 4: Fill out the online application form with details like your personal information, contact details, nominee details, and KYC documents (if required).
  • Step 5: Choose the FD type (cumulative or non-cumulative), tenure, and amount you wish to invest.
  • Step 6: Select the mode of funding - either transfer from an existing account or net banking from another bank.
  • Step 7: Read and accept the terms and conditions, then submit the online application.
  • Step 8: Your FD account will be opened, and you'll receive the FD receipt/advice via email.

Offline Process to Open FD Account

  • Step 1: Visit the nearest branch of the bank where you want to open an FD account.
  • Step 2: Meet with a bank representative and express your interest in opening a new Fixed Deposit.
  • Step 3: Fill out the FD account opening form with your details, contact information, and nominee details, and attach KYC documents (like PAN card, Aadhaar card, and address proof).
  • Step 4: Specify the FD type, tenure, and amount you wish to invest.
  • Step 5: Submit the filled form along with your initial deposit amount by cash, cheque, or fund transfer.
  • Step 6: The bank will process your application, and you'll receive the FD receipt containing details like the deposit amount, tenure, interest rate, and maturity date.
Note: Make sure to read the terms and conditions carefully, especially regarding premature withdrawal penalties, interest rates, tax implications, and renewal process before opening a new FD account.

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Frequently Asked Questions

Choosing between debt funds and fixed deposits depends on your risk tolerance and investment goals. Fixed deposits offer guaranteed returns and are good for short-term goals or if you can't handle risk. Debt funds offer potentially higher returns but have some market risks.

Equity mutual funds offer higher potential returns than FDs but come with more risk. Some government schemes can match FD returns with tax benefits.

Debt funds can be a good choice for stable returns and lower risk than equity funds. They are suitable for short-term goals or investors seeking portfolio diversification.

Debt funds are no longer tax-free in India. Investments in debt funds made after April 1, 2023, are taxed at your income tax slab rate.

Debt funds typically offer lower returns than equity funds and may still be vulnerable to interest rate risk, meaning their value can fluctuate with interest rate changes.

Yes, you can generally withdraw money from a debt fund anytime. Unlike fixed deposits, debt funds are highly liquid with no lock-in period. There may be minimal exit fees in some cases, but typically no penalty for withdrawal.

It depends on your priorities. FDs offer guaranteed, lower returns with high safety. Bonds offer potentially higher returns but come with some risk and more flexibility.

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