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Russian (RU) May 31, 2025, 11:01:27 AM IST
A reddit user posted a query on the mutual fund community that as FD rates have dropped below 7%. Is it worth switching to debt funds now, and how do repo rates affect both? He posted that HDFC Bank has slashed the rate from 7.35% initially to 7% then and now to 6.85%.
ETMarkets.com
Debt funds now offer a more attractive, tax-efficient option for low-risk investors seeking better returns than FDs. In the current environment, short-duration funds and medium-duration funds are ideal for those with investment horizons of 1–3 years and 3–5 years, respectively. Dynamic bond funds are also suitable for those who want fund managers to actively manage duration based on changing interest rates. For risk-averse investors, gilt funds can be a good alternative, offering safety with potential for capital gains if interest rates decline further, Adhil Shetty, CEO of Bankbazaar.com shared with ETMutualFunds.
IANS
3/8
Debt funds performance
ETMutualFunds analysed the two-year performance of all debt mutual fund categories alongside the interest rates on fixed deposits offered by banks in the same period and analysis showed over 250 funds have offered more than the FD interest rates.
iStock
“A prudent strategy is to match the fund category with your investment horizon. A laddering strategy, where you invest across different maturities, can help manage reinvestment risk and interest rate fluctuations. Starting a SIP can also help average out costs, reduce the impact of market volatility and investors should focus on funds with high credit quality, avoiding those heavily exposed to lower-rated instruments,” Shetty said.
ETMarkets.com
With the RBI MPC meeting scheduled for next month, the expert mentions that it's also important to monitor the interest rate cycle, if further rate cuts are expected, longer-duration funds may deliver capital appreciation and lastly, one should understand the exit load and taxation rules.
Reuters
Fixed deposits are considered low-risk investments as they offer a guaranteed return for the predetermined period whereas debt mutual funds have a slightly higher risk associated with them because of the interest rate movement.
iStock
The investment in tax-saving fixed deposits is exempted under Section 80C of the Income Tax Act whereas for the debt mutual funds there is no such exemptions. But both fixed deposits and debt mutual funds are classified under the same asset class.
IANS
Shetty recommends that investors in the higher tax brackets benefit the most from switching to debt mutual funds, savers seeking better liquidity and flexibility than FDs can also consider debt mutual funds and conservative investors, who are looking for stable income but are open to a little market-linked risk, can shift partially to safe options like gilt or banking & PSU funds
ETMarkets.com
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