FD, FMP or Debt Fund: Which is the Best Investment Option

3 popular investment avenues for you to choose from based on your needs.
4 mins
06 September 2023

Understanding the different investment options

Fixed Deposit (FD)

An FD is an investment option offered by lenders, which provides higher interest than a savings account and comes with a predetermined maturity date. It contains a lock-in period but allows for liquidity during times of need or emergency.

Fixed Maturity Plan (FMP)

An FMP is a close-ended debt mutual fund. As an FMP has a definite maturity date, it invests in only those financial instruments that have a similar duration to its term.

Debt Fund (DF)

A Debt Fund is a part of a pool of investment—similar to an exchange-traded or mutual fund—where most of the holdings are fixed-income investments. A debt fund can comprise short-term or long-term bonds, money market instruments, securitised products, and floating rate debt.

Comparison based on what investors look for

Here are the differentiating characteristics of the three types:

1. Return on Investment

FD: Here, the rate of return is predetermined when starting the FD account with the lender, so you are sure of the amount you will receive on maturity. You can use an FD calculator to make it simplify the process.

FMP: The returns are not fixed and are subject to market risks.

DF: The return of investment is not assured, and any change in the market situation will change the fund's net asset value (NAV).

2. Liquidity

FD: Most lenders allow premature withdrawal of the fixed deposit accounts before the date of maturity. The interest will be calculated based on the number of days the fixed deposit was with the lender. However, some financial companies can charge you an early withdrawal penalty.

FMP: In this financial investment option, the money invested is locked-in for the plan's duration.

DF: The units of debt funds held can be liquidated in the market at any time and money realised, typically in just one day.

3. Taxation

FD: The interest earned on a fixed deposit will be taxed as income earned during the financial year. Further, if the fixed deposit interest income is over Rs. 10,000 in a financial year, the lender will deduct a TDS of 10%.

FMP: The short-term (less than three years) capital gain from a fixed maturity plan is calculated as income earned and is taxed as applicable during the financial year.

DF: The taxation for debt funds is similar to a fixed maturity plan with short term gains facing the total income tax charge.

4. Safety of Returns

FD: The fixed deposit interest rate is predetermined and guaranteed.

FMP: The returns are not guaranteed and vary depending on market fluctuations.

DF: There is no guarantee of the returns as it depends on market fluctuations. In fact, in some instances, the principal amount can also be eroded.

Apart from FD and Debt Mutual Funds, some other safe investment options are PF, NPS Bonds, Certificates of Deposit etc.

Thus, the fixed deposit scheme is efficient and offers the best security for your investment, allowing you liquidity flexibility. In fact, with mobile apps and internet banking, it is no longer necessary to visit the bank branch to liquidate or even start the FD account.

Frequently Asked Questions

What is better than FD investment?

Several investment options, including mutual funds, stocks, and real estate, can offer higher returns and more diversification than FDs, depending on your financial goals and risk tolerance. But that does not necessarily mean that these are better investment options than FDs.

Are debt funds better than FD?

Debt funds can provide better returns than FDs in some cases, especially for those willing to accept slightly higher risk. But that does not mean that debt funds are better investment option than FDs, it depends on the investors needs, investment horizon and risk tolerance.

Is debt fund good for long term?

Debt funds can be suitable for long-term investments as they offer potentially higher returns over time compared to traditional FDs.


As regards deposit taking activity of Bajaj Finance Ltd (BFL), the viewers may refer to the advertisement in the Indian Express (Mumbai Edition) and Loksatta (Pune Edition) furnished in the application form for soliciting public deposits or refer https://www.bajajfinserv.in/fixed-deposit-archives
The company is having a valid Certificate of Registration dated March 5, 1998 issued by the Reserve Bank of India under section 45 IA of the Reserve Bank of India Act, 1934. However, the RBI does not accept any responsibility or guarantee about the present position as to the financial soundness of the company or for the correctness of any of the statements or representations made or opinions expressed by the company and for repayment of deposits/discharge of the liabilities by the company.

For the FD calculator the actual returns may vary slightly if the Fixed Deposit tenure includes a leap year.