Long-Term Debt Mutual Funds or FDs. Which is Better?

Long-Term Debt Mutual Funds

A scheme that invests in fixed-income instruments, including Corporate and Government Bonds, corporate debt securities, money market instruments, etc., that offer capital appreciation.

Fixed Deposits

A scheme to invest a lump sum in your bank for a fixed tenure at an agreed interest rate. At maturity, you receive the invested amount plus compound interest.

Which is Better?

With rising interest rates after the Finance Bill 2023, investors are uncertain about choosing debt mutual funds or traditional fixed deposits. Let’s discuss it!


The interest rate on FDs is fixed for the entire FD tenure. But, the returns on debt funds depend on the performance of the underlying assets and can fluctuate.

Interest Rates

Currently the top banks in India are offering FD returns of over 7%. Debt funds can provide an interest rate between 6% and 8%.


The main risk associated with these investment options is Default Risk. It is a risk of loss that an investor faces if the issuer defaults or fails to make timely payments.

Credit Risk Involved

Both Bonds issued by public sector undertakings and sovereigns, & FDs have little risk. However, RBI has secured fixed deposits of up to Rs 5 lakh.

Investment Cost

FDs have zero investment cost. For debt funds, there is a recurring expense ratio that depends on the debt funds.


The earned interest for both instruments is taxed according to your tax slab. However, FDs are subject to TDS, but debt funds are not.

The Final Word

For risk-free investment, choose FDs. If you can take a risk, choose Debt Funds. Consider your financial goals, risk tolerance, & investment horizon before making a decision.