Six reasons why debt mutual funds (MFs) are still better than bank fixed deposits (FDs)

livemint.com:

Debt MFs vs Bank FDs: There was a time when every extra penny was invested in bank fixed deposits (FDs). Our parents have all ended up putting their money in FDs as during those times, that was the best option to earn interest while ensuring that the principal amount remains protected. But in today's world, the horizon of investment has grown much wider, and depending upon one's appetite for risk, investors can choose the best option to grow their money.

In the recent few years, mutual funds have come to the fore because of the lucrative interest rates. So, have bank FDs lost their sheen? Debt Mutual Funds (DMFs) offer slightly higher returns than bank FDs with the benefit of early withdrawal.  Banks offer a pre-set interest rate for fixed deposits based on the tenure chosen.  1)"Like any mutual fund, a Debt Mutual Fund (DMF) operates at a portfolio of securities, in this case, debt securities. This allows the investors to participate in a slightly higher interest-yielding opportunity than a bank FD," said Prashant K Goyal, Associate Professor, JAGSoM 2) A good fund manager can ensure a high level of safety of the money and an investor should consider a DMF that invests in AAA-rated securities.

Safe investment coupled with a slightly higher return makes a DMF a better option, added Goyal. 3) The other benefit of DMF is that one can exit from them after a very small lock-in, unlike bank FDs where one has to bear a penal rate in case of early withdrawal. 4) With the change in the tax treatment DMFs have come at par with bank FDs which means the returns are taxed as any other income of the investor.