I am 34 years married with a son and reside in Mysuru. I have been investing in FD's since the last 10 years. Recently, My friend told me that debt mutual funds give higher returns than FD's. Is this true? Kindly advise.
Yes, debt funds have the potential to generate higher returns than FDs on a post-tax basis. Income funds are a type of debt mutual funds that Invest in a combination of government securities, certificates of deposits, corporate bonds and money market instruments. They are managed by expert fund managers who seek to generate returns both in declining and rising interest rate scenarios by managing their portfolio actively. You also have the dynamic bond funds, where fund managers actively manage the interest rate risk by constantly trading instruments of different maturities, according to expected movement in interest rates. Besides, debt funds receive capital gains indexation benefit when held for over 3 years. This is not available with fixed deposits. A combination of the ability to earn higher returns + tax benefits, gives debt mutual funds the potential to beat fixed deposits. But with MFs, returns are not guaranteed, as they are with the fixed deposits.