Debt Funds vs FD returns

 Do not look at past 1/2/3/5 year returns of debt MFs and compare with current FD rates. 

If you have to compare, then compare what was the FD rate 1/2/3/5 years back. That is what you have got and then only compare past performance of Debt MFs.

But better way is to look at current FD rates of 1/2/3/5 year period and compare YTM of the Debt MFs of the similar time period. 

This picture is for funds of Kotak MF. Debt Funds from Other MFs have almost similar YTM. 

In addition to this you will get additional benefits by investing in Debt MFs. 

- Debt MFs’ YTM is higher then most FDs.

- Diversification.

- Compounding (FD have coupon but do not compounds effectively) 

- Tax Efficiency 

- Holding Period Return.

- No leakages (Interest received by the debt MF get invested immediately unlike interest received by the investors)

Save this message. Over next 3/5 years and even for longer tenure, Debt MFs have high probability to outperform most FDs.

Source: Vijai Mantri