Fixed Deposit Vs Debt Mutual Fund Vs Corporate FD

Earning profits is something that everyone desires, but not everyone is willing to take risks. Investing in the stock market, such as through equity mutual funds, is similarly structured. These investments come with the potential for high returns but also carry the risk of fluctuations in the market. For investors interested in reducing exposure to the ups and downs of the market, there are selected options available, such as corporate deposits, namely corporate FDs, debt mutual funds, and bank FDs. Let’s see where you might get higher returns. First, let’s talk about bank FDs.

Bank fixed deposits, or FDs, are considered guaranteed returns and low-risk investments. The interest rate you agree upon when investing in an FD remains constant throughout the entire tenure, ensuring a fixed return. Speaking of major banks, the State Bank of India (SBI) offers interest rates ranging from 3.50% to 7.00% on FDs ranging from 7 days to 10 years. Bank of Baroda offers rates between 4.25% to 7.25%, HDFC Bank offers between 3% to 7.25%, and ICICI Bank offers between 3% to 7.20%. These rates apply to deposits of less than 2 crores.

Senior citizens, aged 60 and above, typically receive an extra interest rate of up to 0.50% from banks. Deposits up to 5 lakh rupees in a bank are insured by the Deposit Insurance and Credit Guarantee Corporation (DICGC), a subsidiary of the Reserve Bank of India (RBI).

Debt mutual funds, a type of mutual fund, invest in fixed income instruments such as corporate and government bonds, corporate debt securities, and money market instruments. Debt funds are less volatile compared to equity mutual funds, thus offering lower risk. There are various categories of debt funds like liquid funds, short-duration funds, ultra-short duration funds, and long-duration funds. Most debt mutual funds can offer returns of up to 7.5% annually.

According to AMFI data, the one-year returns for some liquid debt mutual fund schemes are as follows: Edelweiss Liquid Fund (Direct) offers a return of 7.42%, Mahindra Manulife Liquid Fund offers 7.40%, Aditya Birla Sun Life Liquid Fund offers 7.38%, and Axis Liquid Fund offers 7.36%. These returns are up to June 6, 2024.

A good way to earn higher interest compared to bank FDs and debt mutual funds is through company fixed deposits, known as corporate FDs. Corporate FDs are term deposits that offer a predetermined interest rate over a specified period, similar to bank FDs. Corporate FDs are issued by finance companies and NBFCs (Non-Banking Financial Companies). For example, Bajaj Finance offers an interest rate of 8.60% for a 42-month FD, while Shriram Finance offers 8.80% annually for a 50-month FD.

Fixed deposits from top finance companies like Bajaj Finance and Shriram Finance offer 1 to 1.5% more interest than bank deposits and debt mutual funds. However, before investing in corporate FDs, always check the company’s financial strength, track record, and FD ratings. Choose companies with strong ratings like AAA or AA+ since higher ratings indicate lower risk. Stay away from corporate FDs with lower ratings or no ratings, even if they offer higher returns.