Risk-averse investors prefer parking their hard-earned funds in safe investment instruments like FDs. For decades, FDs have remained one of the most favoured investment instruments for those seeking assured returns and capital safety. However, amidst the growing awareness of mutual funds, debt funds have emerged as another prudent investment option for low-risk investors who desire higher returns than regular FDs. If you are a low-risk investor, you must understand the differences between debt funds and FDs to choose wisely. This article sums up the debt funds vs. FD debate in detail to help make the decision-making process simpler for you.

But before we head to the differences between debt funds and FDs, let’s understand the meaning of each in detail.

• Debt funds offer higher returns but lack the guaranteed returns component of FDs.
• FDs are safe investment instruments that offer 100% capital safety.
• Debt funds are low-risk instruments subject to credit and interest rate risks.

Fixed deposits are term deposit accounts offered by banks and NBFCs. You invest a lump-sum amount in an FD account for a fixed tenure and earn a fixed interest rate on the sum. Typically, FDs offer a higher rate of interest than savings bank accounts. FD interest rates range from 6%-8% p.a. for regular citizens, while seniors enjoy a higher rate. Bank fixed deposits are deemed as risk-free investing avenues, making them ideal investment options for risk-averse investors who wish to earn guaranteed returns on their investments.

Debt funds, on the other hand, are certain types of mutual funds that pool money from multiple investors to invest in money market instruments and fixed-income securities like bonds, commercial papers, CDs, and debentures. Debt funds offer higher return potential than FDs, but also carry greater risks. Unlike FDs, the returns from debt funds are not guaranteed but depend on the market conditions. Therefore, debt funds are better suited for investors who seek higher returns and can tolerate slightly higher capital risks.

To better understand the debt fund vs. FD debate, you need to cognise the primary differences between the two. Here’s an overview of the differences between debt funds and FDs:

The debt funds vs. FD debate outlined above clearly highlights the differences between these two investment avenues. If you prioritise capital safety and assured returns, FD is the better option for you. However, if you’re comfortable with slightly higher risks for superior returns, you can invest in debt funds. As an investor, you do not have to restrict yourself to any one of these instruments. Instead, you can diversify your investment into both these avenues to steadily grow your corpus with a mix of guaranteed returns and higher yields.

If you are looking for safe investment option, then you can consider investing Bajaj Finance Fixed Deposit. With a top-tier AAA rating from financial agencies like CRISIL and ICRA, they offer one of the highest returns, up to 8.60% p.a.