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Why Wait? Debt Funds Today Are Beating FDs in Every Parameter

There was a time when investing in FDs was considered the mature option for Indians. Twenty years ago, FDs were considered a disciplined investment whereas gold was not. Similarly, FDs were a goal-oriented investment whereas property was not.

Those days are long gone, though. With the introduction and gradual popularity of debt funds like guaranteed plans in the market, FDs have a competitor that not only incorporates all the advantages of FDs but also removes all the disadvantages of investing in them.

Here is a comparison of guaranteed plans with fixed deposits:

Comparison Head

Guaranteed Plans

Fixed Deposits

Tax-adjusted Returns

7 to 9%

6 to 8%

Risk

Low

Low

Change in Interest Rate

Does not change

Can change with Budget

Liquidity

High

Low

Investing Mode

Lump sum or SIP

Lump sum only

Fund Management Charges

Nominal

None

Guaranteed plans are highly goal-oriented and disciplined. The forced investment nature (it is difficult to exit a guaranteed plan without huge penalties) ensures you stick to the greater goal and do not stop investing. This is how guaranteed plans incorporate all the advantages of FDs.

Unlike FDs, guaranteed plans’ rate of returns (RoR) never change. While the RoR of FDs is subject to the Annual Budget announced by the government of the day, guaranteed plans do not have this weakness. Note that the FD rates have dipped from 14% in the past to close to 6.5% today. And global and national trends indicate that this will only reduce further.

Guaranteed plans rates never change, regardless of the government in power or market conditions. There are no re-investment risks; whatever the insurer has committed to you on paper will be paid out at maturity, guaranteed.

The culture of systematic investments has become popular in urban India, and guaranteed plans offer investors the option to invest through SIPs, unlike FDs. One can invest in FDs only through the lump sum mode, which is a disadvantage that guaranteed plans overcome.

Naturally, being an insurance product, guaranteed plans offer death benefits too, which will ensure your family is financially protected in case of your untimely demise.

To know how guaranteed plans help you save tax, read Better and Beyond Fixed Deposits (3-minute read).


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