Which mutual fund is best for a fixed deposit?

Is your fixed deposit maturing and you are looking for some other good investment alternative? Mutual Fund (MF) is one of the most-sought-after investment options that perfectly cater to the wide-ranging investment needs of people. Though there are some sorts of risks associated with mutual fund investment but by choosing a right hodgepodge of funds, you can get the most from MF investment. However, before moving further, we want investors to understand the very difference between mutual fund investment and fixed deposit so that they can easily decide on an avenue to choose.

In this context, the major difference between the two is that of an interest rate. While the rate of interest in MF investment tends to fluctuate as per the market conditions, fixed deposit interest rates remain fixed throughout the investment tenure. Alternatively, fixed deposits promise assured returns whereas MF investments are subjected to market risks. This means, if the market burgeons, the investment is likely to yield better results and vice versa. The nature of risk in Mutual Funds, however, depends on funds to funds but the fundamental point here is that mutual funds do not provide assured returns and are not risk-free as in the case of fixed deposits. But if you go by the rule where the risk and returns go hand in hand, taking a small risk to earn good returns is worthy in every sense.

Risks Associated With Mutual Fund Investment

Here is a sneak-peak into different types of risks associated with Mutual Fund investments:-

Different mutual funds have dissimilar risks associated with each one of them. This is why the Security and Exchange Board of India (SEBI) has come up with a labeling system (Risk-O-Meter) for evaluating the risk of different mutual fund products. To find the risk grade of different funds, you can visit the official website of the asset management company.

Plus we’ve also enlisted the different categories of debt mutual funds underneath:-

1. Low-risk funds: In general, different categories of debt mutual funds are considered as low-risk funds. Investors looking for low risk of their funds and can withstand just a small capital loss can invest in this kind of fund. Low-risk funds are good investment options if an investor is ready to afford minor fluctuations in their capital investment.
2. Medium risk funds: As the name depicts, this mutual fund schemes come with moderate risk. The returns in these kinds of funds are more impetuous. Also, the risk associated with medium risk funds is slightly higher from low-risk funds. However, these funds can yield better returns than low-risk funds. Investors looking for income and capital appreciation can consider investing in Medium risk funds over fixed deposits that promise assured returns but at a lower rate of interest. Different types of hybrid mutual funds including both equity and debt funds, like equity savings funds and monthly income plans are included under this risk grade category.
3. High-risk funds: This type of mutual fund products comes with high risk. Here the loss of capital is highest in short-term investment but in the long run, these high-risk funds are sure to provide highest returns. Investors looking for a long-term investment with higher capital appreciation must invest in this type of mutual fund. Equity mutual funds come under this risk grade.

Investors switching from fixed deposits to mutual fund investment and are comparing between the two should understand that FDs are a low-risk investment; hence it should be compared with the low-risk funds only for better judgment.

What is a debt fund?

A debt fund is a kind of mutual fund scheme which invests in debt market securities or in the money market (to be precise). The best example of debt fund investment includes a certificate of deposits, treasury bills, and commercial papers to name a few. Even you most debt fund belong to the low-risk grade but they are not risk-free. However if given a chance to choose between fixed deposits and debt funds, debt fund is certainly the best investment option as they give superior returns when compared with fixed deposits. There are different types of debt funds with dissimilar risk profiles. The table below illustrates average, medium and highest returns of different categories of debt funds over the last one and three years correspondingly.

Debt mutual fund category	One year return		3-Year annual returns
	Average	Medium	Average	Medium
Liquid Funds	6.1%	6.6%	7.1%	7.6%
Ultra-short term Debt Funds	6.7%	7.1%	7.8%	8.1%
Short Term Debt Funds	00.7%	00.7%	8.6%	8.6%
Credit opportunities funds	8.3%	8.2%	9.5%	9.4%
Fixed Maturity funds (FMPs)	6.9%	6.7%	7.7%	7.7%
Income funds	6.3%	6.6%	9.2%	9.5%
Long-term gilt funds	6.4%	6.2%	10.7%	10.5%

The Bottom Line

In the above table you can see that most categories of debt mutual fund surpassed the last 3 years of fixed deposit returns over a similar period of time. Even in the last one year, debt mutual fund categories including credit opportunity funds, fixed maturity funds, credit opportunities funds did better than fixed deposits. Also, the fund categories which were not able to perform in the last one year did well over the last three years. Earlier in this article, we’ve mentioned that mutual funds are subjected to market risks and those risk and returns go hand in hand with MF investment. It is therefore imperative to choose funds as per your requirements. Make sure your investment profile should have a perfect amalgamation of high and low-risk funds so that you can optimize the level of risk to get the best possible returns on your investment. In case you require any assistance related to mutual fund investment, you can seek the advice of professionals to make the wisest decision at the end.

Why use a calculator to assess FD returns

Earn some extra money while you save! Putting your money into a good fixed deposit scheme is one of the safest ways to invest. A fixed deposit (FD) scheme is where you can deposit your money with the purpose of earning fixed returns periodically while saving for your future goals. You can deposit your money for a period ranging from 7 days to 10 years as per your convenience. The money in your fixed deposit account earns returns at a higher interest rate than your traditional savings accounts. Fixed deposit accounts also benefit you by allowing overdraft (i.e. loan against FD) of up to 90% of the deposit amount.

Fixed deposit interest rates are based deposit amount, deposit tenure, and bank to bank. The interest rates are compounded quarterly, half yearly or yearly as chosen by you. A fixed deposit account holder is eligible for tax benefits Under Section 80C, given your returns does not exceed Rs 10,000.

Benefits of investing in Fixed Deposits:

1. Assured returns on the deposit amount.
2. Flexible return options on deposits.
3. Simplest investment options with higher returns.
4. Special FD interest rates for senior citizens.
5. Tax-saver deposit schemes are available.
6. Special interest rates for Non Resident Individuals.

The money you invest in a fixed deposit account is your hard-earned money. If you are contemplating to invest money into a fixed deposit account then you must calculate the maturity amount using a fixed deposit calculator. Fixed deposit is considered as an investment option therefore, it is important to calculate the interest returns before investing.

PaisaBazaar offers a fixed deposit calculator which is a distinctly designed to help you calculate your interest returns. It is a convenient online financial tool especially designed to save time by calculating the annualized yield amount within seconds. All you need to do is enter the deposit amount, FD interest rate, and deposit tenure.

What is Deposit Amount?

It is the amount that you deposit into your fixed deposit account at the time of account opening.

What is Rate of Interest?

The Interest rate is the percentage at which you will yield periodic returns. The interest rate varies based on the deposit amount and the deposit tenure.

What is Deposit Tenure?

Deposit tenure if chosen by the deposit account holder at the time of account opening. It is the period of time for which the deposit is made. Banks offer flexible deposit tenures ranging between 7 days to 10 years.

How to check FD returns?

Nowadays all leading lending institutions and financial aggregators (such as Paisabazaar.com) offer fixed deposit calculator to ease the hassle of making lengthy calculations to know the FD returns. In such calculators usually one has to simply enter some basic details, such as investment amount, tenure, and interest rate. And voila, you’ll know your maturity amount, that is the amount you will receive at the end of the fixed deposit’s tenure.

Example:

Ramesh wanted to start saving money and thought of investing in a fixed deposit. He checked online how an investment amount of Rs 1 lakhs would vary with respect to changing interest returns and tenure. Here’s what he found out:

Investment amount	Tenure	Interest rate	Maturity amount
Rs 1 lakhs	1 year	7.50%	1,07,763
	3 year	7.50%	1,25,144
	5 years	7.50%	1,45,329

Based on these results, he decided to open two FDs. The first FD for Rs 1 lakhs for 2 years for financing his short-term goals and another for 5 years as a way of tax-savings and to help him with mid-term goals.

Top 5 Fixed Deposit Schemes

Make your money work for you by investing into the best fixed deposit schemes. A fixed deposit (FD) account is wherein you deposit your money for a stated period and earn returns on the amount at a fixed interest rate. In this sense, while it may seem similar to a savings account, it actually isn’t. Here’s why – 1) an FD is a tax-saving instrument and 2) FDs don’t allow withdrawal without levying a penalty. It is one of the safest investment options as compared to other investment types. You can invest for a period ranging from 7 days to 10 years, which makes it cater to pretty much every age group and investor type.

Best Fixed Deposit Schemes with higher returns:

Ratnakar Bank (RBL)-

The Ratnakar Bank Limited, now known as RBL Limited, is one of the oldest private sector banks in India. The bank was established in 1943 in Maharashtra. The bank was formed as a small group to serve to needs of small and medium businessmen in the Kolhapur-Sangli belt. Now, the bank is widely spread across 16 states and union territories in India. Ratnakar Bank Ltd offers fixed deposit schemes to help people save money for their long term goals and earn at attractive interest rates.

Why opt for Ratnakar Bank Ltd fixed deposit schemes:

1. Overdraft facility available
2. Partial/ Premature withdrawal facility
3. Easy investment option with high returns
4. Flexible return options

Yes Bank:

Yes Bank is the 5^th largest private sector banks in India. It is a “Full Service Commercial Bank” that offers Investment Banking, Corporate Finance, Business and Transaction Banking, Corporate, Branch Banking, Wealth Management Business, Financial Markets, Retail and SME Banking in India. The bank is known as fastest growing Top banks in India, making it a foremost bank for fixed deposit schemes.

Reasons to choose for a Yes Bank fixed deposit schemes:

1. Flexible options to receive the interest returns on deposits
2. Tax-free fixed deposit schemes are available
3. Special fixed deposit interest rates for senior citizen account holders
4. Flexible withdrawal facility

IndusInd Bank:

IndusInd Bank Ltd was established in 1994 to provide transactional, commercial and electronic banking facility. The bank is one of the 1^st new generation banks to offer specialized retail banking services with upgraded technology. IndusInd Bank offers 7.05% p.a to 7.15% p.a. fixed deposit interest returns special deposit tenure from 12 months to 14 months.

Below are the important reasons to choose IndusInd Bank for a fixed deposit scheme:

• Flexible deposit tenures as per your convenience
• Various fixed deposit schemes
• Attractive interest rates
• Auto-renewal facility

DCB Bank:

DCB Bank is a private sector emerging new generation bank with 250 branches in India. The bank is dedicated to building sound economy through its financial services. The bank provides various fixed deposit schemes at attractive interest rates with flexible deposit tenures to meet the individual needs.

Below are the key features of DCB Bank fixed deposit schemes:

• Special interest rates for senior citizens and Non Residents individuals.
• Flexible fixed deposit tenures
• Fixed deposit interest rate is 7.00% p.a
• Assured returns

Punjab National Bank:

It is a state-owned Indian multinational company which offers banking and financial services. The bank was founded in 1894 and is now managing a network of over 6,900+ branches and 9,900+ ATMs. The bank has positioned itself as the “Benchmark of Excellence” and “Most Preferred Bank” in the banking industry. Punjab National Bank offers various fixed deposit schemes as per various goals of an individual. The fixed deposit schemes offered by the bank are PNB recurring Deposit Scheme, FD schemes for Road Accidents Victims, Recurring Deposit Schemes, PNB Anupam Term Deposit Scheme, PNB Balika Shiksha and much more.

Below are some of the important reasons to opt for a PNB fixed deposit scheme:

1. Minimum deposit amount is Rs 100.
2. Flexible deposit tenure
3. Interest returns at 6.90% p.a.
4. Assured returns

Fixed Deposit Interest Rate:

Interest rates are of Fixed Deposit Tax Saver Schemes for a period of 1 year – 2 years:

Bank Name	Ratnakar Bank	Yes Bank	IndusInd Bank	DCB Bank	Punjab National Bank
General	7.50%	7.10%	7.05% - 7.15%	7.00%	6.90%
Senior Citizen	8%	7.60%	7.55% - 7.65%	7.50%	7.40%

**Companies are ordered according to the highest fixed deposit interest rates.

4 Easy ways to Avoid TDS on Fixed Deposits

Fixed deposit is a deposit offered by banks wherein you agree to make a FD at a pre-determined rate of interest for a specified period of time. This time usually starts from 7 days up to maximum of 10 years. The interest rate varies according to the time limit. It is one of the most liked and safe investment options.

There are few types of FD provided by the banks

Regular Fixed Deposit Schemes

This is a regular FD where the interest period starts from 7 days up to 10 years.

Tax Saving Fixed Deposit Schemes

This FD has a lock in period of 5 years. An investor cannot withdraw the amount before FD term gets over, loan cannot be taken against such FD and auto renewal is not applicable for such FDs.

Recurring Fixed Deposit Schemes

This deposit allows an individual to deposit a fixed amount every month and earn interest at a fixed rate. It is more preferred by people having regular incomes.

Special Tenure Fixed Deposit

FD made for specific number of days such as 459 days, 779 days, 999 days etc. Special tenure FDs carry a little higher interest rate as compared to regular FD.

Fixed flexi Deposit Scheme

This is a flexible FD linked to your saving account wherein if the balance of account falls below minimum amount, the balance amount is swiped in from your FD thus avoiding the bank charges.

Floating rate Fixed Deposit

Few banks have come up with floating rates FD wherein the interest rate is not fixed and keeps varying. A change in RBI’s rate could benefit such investors.

The bank pays interest monthly, quarterly, half yearly or yearly as pre agreed. An individual investing in FD has an option to either receive the interest amount monthly in a particular account or to let it accumulate and receive at the time of maturity.

As per Income tax act, interest income up to Rs.10,000/- is exempt.  Any income above Rs.10,000/- will be taxable if you have given the PAN card details to the bank ( In case the bank does not have PAN card, it will deduct tax at 20%)and the bank issues TDS certificates for the amount deducted as tax. This TDS certificate will then be submitted while filing income tax returns. But, there are few simple ways in which the interest amount can be received without deduction of TDS.

   1) Submission of form 15G/15H

If an individual’s taxable income is Nil or below the taxable limits, he should fill form 15G (form 15H for senior citizens) and submit it to the bank. This form is valid for a period of one year. It is preferable to submit this form at the beginning of the year

   2) Splitting the FD in different banks

You can make FD’s in different banks in such a way that the interest income does not exceed Rs.10,000/- for a particular year. The bank will include deposits it holds in all of its branches for the purpose of calculating total interest income earned during the year

   3) Preparing FD in the name of family members

The total amount for FDs could be split among the number of family members like spouse, children and parents in a manner that any of the interest on FD do not exceed Rs.10,000/-. This way the interest income will get split between the family members enabling the investor to avoid TDS deduction                 

   4) Depositing amount in HUF and personal account

You can split the amount under two accounts – one can be personal account and another can be HUF account thus dividing the amount to be invested.  Both of these accounts will be treated separately.