Is debt mutual fund better than fixed deposit?

Return Potential

Generally, offers higher potential returns compared to fixed deposits, but returns are not guaranteed and vary based on market conditions.

Offers fixed and guaranteed returns over the investment period.

Risk

Subject to market risk and fluctuations in interest rates, though generally considered lower risk compared to equity mutual funds.

Considered low risk as principal amount and returns are guaranteed.

Liquidity

Offers higher liquidity as you can redeem your investment partially or fully at any time.

Offers liquidity subject to penalties for early withdrawal before maturity.

Taxation

Taxed as per capital gains tax rules, with different tax treatments based on the holding period (short-term or long-term).

Interest earned is taxable as per income tax rules.

Diversification

Provides diversification by investing in a portfolio of debt securities across various issuers and maturities.

Offers no diversification as it involves investing a lump sum amount with a single institution.