FD Or Debt Fund: Which Can Offer Better Returns, Tax Benefits & Liquidity?

Debt funds can offer investors an alternative to fixed deposits, with the potential for slightly higher returns along with greater liquidity. Shweta Rajani, Mutual Fund Head, Anand Rathi Wealth, explains that returns vary across debt fund categories. G-Sec-oriented funds may offer around 6.5–6.75%, while corporate bond funds can offer around 7.5% and credit risk funds may offer yields closer to 8%, depending on market conditions. Debt funds also provide liquidity without the premature withdrawal penalty associated with many FDs. Another potential advantage is taxation at redemption rather than annual accrual, subject to applicable tax rules. Investors should compare returns, risks, liquidity and taxation before choosing between FDs and debt funds.