FD Vs Debt ETF: which is better for Investment

As investment options, FD and debt ETF are these days highly popular among the investors. While FD or fixed deposit is highly familiar to us for a few decades, the emerging concept of debt ETF has allured a lot of investors to take added interest in this investment vehicle due to its overwhelming advantages. However, if you wish to know which among these two is better for you, here we go discussing FD Vs Debt ETF from different perspectives to enable you make the right decision while investing.

Some FAQs on FD Vs Debt ETF

FD or ETF – which one assures a higher rate of returns?


The rate of returns in case of debt funds is 7% to 9% while FD carries only around 6% to 8% rate of returns.

Do they feature dividend option?

Debit funds feature dividend option while there is no such option with regard to FD.


How do they compare in terms of risk?

The risk is low with regard to FD while debt ETF has low to moderate levels of risk.

In which investment option the liquidity is more?


The liquidity is high in case of debt ETF while FD has very low levels of liquidity.

What are the investment options available with them?

When you invest in debt ETF, you can choose between one-time investment of SIP investment. In case of FD, there is only a single option namely lump sum investment.


Can you withdraw your investment before maturity?

Early withdrawal is possible in case of debit ETF while FD does not provide this convenient to the investors. In case you wish to withdraw a FD before the maturity, you will incur a penalty.

Is there any investment expenditure?


When you invest in debit ETF, you will incur a nominal expense ratio, while there are no management costs in case of FD investment.

Some important points of comparison between debt ETF and FD



Short-term gains of debt funds are taxable corresponding to the investor’s income slab. While there is an additional benefit of indexation, long-term gains on debt funds will be taxed at 20% up to 3 years or more. With regard to the returns in case of FD, the taxes will correspond to your individual tax slab.

Inflation adaptability of FD and Debt ETF

Inflation places a damper on your savings since there is a loss of currency value over a period of time. Debt mutual funds have the advantage of pacing with the inflation despite the low to moderate risk they carry. When you have invested in FD with 6% interest rate and the inflation rate is 5%, you will get an adjusted return of just 1%. So, we can say debt ETF deliver comparatively higher returns.


Final verdict

Debt funds are almost on par with the conventional FDs in terms of risk. The main goal of a debt fund is to give a steady income to the investors all through the investment horizon. Hence it is necessary that you choose the time horizon that is in line with the fund. These days, the investors are in an advantageous position as they can get to know how the amount they invested in debt ETF performs. Therefore it is easy to take advantage of the volatility of the market to build up on their invested amount. Given the scenario, debt ETFs can be deemed as a better investment option when compared to FD.