Company FD Vs Bank FD Vs Debt Mutual Funds – Which is the best investment option?

Company FD Vs Bank FD Vs Debt Mutual Funds - Which is the best investment optionCompany FD Vs Bank FD Vs Debt Mutual Funds – Which is the best investment option?

Moderate risk to low risk investors would generally look for company fixed deposits and bank FD’s. However, clever investors would invest in debt mutual funds. Many investors do not even know about debt mutual funds. How Fixed Deposits and Debt Mutual Funds can be compared in terms of risk and returns? Among Company FD Vs Bank FD vs Debt Mutual funds, which is best investment option for the investors?

First let us understand more about these Debt Mutual Funds, Company FD’s and Bank Fixed Deposits

What are Debt Mutual Funds?

Debt funds are basically mutual funds that invest in debt or fixed income securities like treasury bills, government securities, corporate bonds etc.  It is a professionally managed fund that collects money from the public and then re-invested by the mangers to earn a slow but steady income. It also includes various funds investing in bonds of different time horizons. It is preferred by those individuals who are not willing to invest in a equity market which is very volatile. It provides a steady but low income as compared to equity.

Also Read: Top and Best Debt Mutual Funds to invest in 2016-2017

What are Bank Fixed Deposits?

Skip this section if you are already aware. Bank FDs or bank fixed deposits are the financial instruments provided by banks. Investors can invest fixed amounts in bank and earn fixed interest during the tenure. It ensures higher rates of return than the regular saving account until the maturity date.

What are Company Fixed Deposits?

Company FDs or company fixed deposits are the deposits made by investors with the company carrying a fixed rate of interest over a period of the time. They provide much higher returns than the bank FDs. Financial institutions and non banking financial institutions (NBFCs) also accept such deposits. These deposits are governed by the Companies Act and are treated as unsecured loans i.e. they are not secured against any asset of the company and in case of company default; your investment may become bad.

Company FD Vs Bank FD Vs Debt Mutual Funds – Which is the best investment option?

Now if you are moderate risk taker to low risk taker, you might get doubt, which is the best investment option for you.


Bank FD’s provide 6% to 7.5% interest rates. Company FD’s provide 8% to 10% interest rates. On the other hand, debt mutual funds do not provide any fixed returns. However they offer 8% to 12% annualized returns if invested in a good debt mutual fund scheme.

Risk factor

Bank FDs are the safest investments as far as risk is concerned because there is no chance of default in payment of interest or principal amount. Banks are goverened by RBI. Company FD is quite unsafe as it is not secured against any asset of the company. The chances of default of interest or principal payment are quite higher.

On other hand debt funds are market linked instruments, but they are considered as investments of low risks or very minimal risk which arises in some extreme economic conditions. The degree of risk depends upon the type of security chosen to invest the funds. These are low risk compared to other top equity mutual funds.

Tenure of the investment

Debt funds comes with a tenure of both long term and short term maturity while bank FD and company FD comes with tenure that generally range from 12 months to 60 months.

Taxation point of view

Debt funds returns of less than 3 years are short term capital gains and you need to pay income tax as per your income tax slab.  But, in case the period of investment is more than 3 year, the tax would be computed based on indexation method (tax would be 10% with indexation and 20% without indexation). There is no TDS deduction in debt mutual fund, however investor need to pay income tax.

In company fixed deposit; TDS is deducted if your interest income crosses Rs. 5,000 whereas in bank FD, this figure is Rs. 10,000. Banks deduct TDS at 10% (provided you update PAN number) on the interest for Fixed deposits. However, investor need to pay interest based on their income tax slab irrespective of TDS amount from both company FD returns and Bank FD returns.


While investing in company FD, the investors need to be cautious and check the rating of the company before investing. One should study the financial statements and other documents also of the company very carefully before investing.  If a company FD has a rating of AAA, it means that it is safe and secure. Bank FDs are the safest to most extent. However, debt funds need to be checked as to in which funds your investments are being re-invested. Check out with the ratings of the debt funds like Crisil Rank, Value Research Online Ranking and Fundsindia ratings.

Also Read: Best Company FD Schemes to invest in India

Conclusion: Low to moderate risk takers would invest in FD’s and debt funds. However considering the risk appetite, tenure and taxation point of view, one can take a call based on their need. If you can take some risk, debt funds and company FD’s can fetch you higher returns.

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Company FD Vs Bank FD Vs Debt Mutual Funds – Which is the best investment option

Suresh KP


  1. hi mr suresh,

            I am an defence officer who is planning to take premature retirement from my job. i will be getting 80 lakh as my emoluments on my retirement. i need to buy a house for myself for 65 lakh. please advice me how should i invest my money. so i can take a house loan too and invest my remaining amount in demat account or mutual funds to get regular income to repay my home loan amount. waiting for your advice.

  2. Good website.

    Will a senior citizen have to pay tax on Capital Gains from selling Debt funds, if the total of Capital Gains and all other income is less than 3 lakh Rs for the year?


  3. What do u mean by taxation by indexation method ?

    I have a horizon of 3 to 5 years and want to put 5 lakhs in low to mid risk funds. I have FDs, Equity MFs too. what would be the best Debt or arbitrage fund to enter.

  4. Hello Suresh Sir, Thanks for your valuable information, I am a regular follower of your articles.
    Once I asked you about my investments but you didn’t replied kindly suggest.

    Leaving a partnership business I got Rs. 20L from my partner and right now I did not have any expenses or loans, and I do not need this money in coming 8-10 years as I have other business and source of income so my question is what should I do?

    1. Should I Invest in land or Real estate?

    2. Should I Invest in Stock Market? If yes kindly suggest which one.

    3. Should I Invest in Mutual Fund? If yes kindly suggest which one.

    From last 1.5 month I had invested this in ICICI Pro liquid fund

    Please Reply.

    1. Hi Ajay, regd your query 1) Real estate currently expected to take correction. If you see plot / house at cheaper price, it is best time to invest 2) stock market, you should take disciplined approach of investing regularly, hence you should avoid investing lumpsum 3) Mutual funds, you can invest, however invest in liquid / debt funds and do STP to equity funds over 10-12 months

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