Are bank fixed deposits (FDs) right for making more money? These 2 things will clear all your confusion

Every person wants to earn more money from their investments. They also want to make sure their money is safe. If there is too much risk, people want to avoid that money making scheme generally. So, how to earn great amounts of money without putting yourself at risk of losing it. Well, fixed income instruments are a great option to make money. However, the question on everyone's mind in these corona hit times is whether Fixed Deposit (FD) are safe and viable option to make money. There is another option too - debt funds. Yes, there is some risk involved in debt funds too. So, we present here 2 clear charts that will clear all confusion.

The problem with fixed deposits is that many banks have reduced the rate of interest they were offering to investors. This has taken some sheen out of this investment option, which is otherwise considered a safe bet. So, if you have invested in FDs, then you are losing a lot of money. The falling rates have an impact on the returns on your investments.  

See features of FD 

Fixed deposit is one of the popular options for fixed income and is considered safe. It can be for the duration ranging between 7 days and 10 years. The investors can open an account with a bank or a post office. Investors also have an option of Corporate FDs. You can put a onetime amount for a long time. The interest rate is decided as per the duration of the policy. 

Interest Rates of FD 

Banks                                          3-5 years       5-10 years 

SBI                                                 5.30%             5.40%             

BoB                                                5.35%             5.35%         

HDFC Bank                                    5.30%             5.50% 

Axis Bank                                       5.40%             5.50% 

ICICI Bank                                      5.35%             5.50% 

Now know the 3 Disadvantages of FD 

• The return on your investment is not enough in FDs 
• The interest rates have been reduced 
• Importantly, FD income is NOT enough to beat current inflation! 

Debt Funds 

• Debt Mutual Funds invest in debt  
• Bond, debentures and government securities are the types of debt funds 
• Deposits Certificate, Commercial Paper and Debt instruments  
• Different Debt funds for different duration and financial goals 

Disadvantages of Debt Funds  

• Some risk involved in this type of investment  
• The investment may see rise and fall 
• The risks on the credit and interest side  
• Risks may also be related to the scheme 

What to see in debt investments? 

• Never invest in non-AAA rated bonds  
• Investments advised in funds that are AAA rated 
• Impact on portfolio is negative on downward revision of the ratings   
• Weak liquidity situation can impact the debt portfolio 
• Consider risks, duration and target while investing in debt funds 

  How has debt category performed?

Fund                                            3YR(%)              5YR(%)             10YR(%)                                                    

Medium duration                            6.20                    6.97                   7.81                     

Medium long duration                    7.17                    7.55                   8.07 

Long Duration                                9.78                    9.81                   8.95 

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On the basis of these 2 charts you can easily decide for yourself what you want to do - go for bank fixed deposits or debt funds.