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Financial experts suggest opting for beneficial mutual fund schemes amidst falling interest rates provided by savings accounts and fixed deposits.
Debt Mutual Funds are now better than FDs, say experts. (Photo Source: Freepik)
Financial experts are promoting investments in mutual funds over fixed deposits due to falling interest rates in the market. According to Swapnil Aggarwal, Director of VSRK Capital, conventional instruments such as savings accounts and FDs are not as attractive anymore. For Aggarwal, investors should rather approach the financial market for a beneficial mutual fund scheme.
From February 2025, the Reserve Bank of India (RBI) has been cutting the repo rate, with interest rates dropping by a total of 100 basis points from 6.5 to 5.5 per cent in fewer than six months. RBI’s directive was followed by commercial banks drastically reducing the interest rates on fixed deposits.
Consequently, investors can no longer expect term deposits to deliver satisfying results for locking funds. In such circumstances, investors are advised to opt for debt mutual funds such as money market funds, corporate bond funds and liquid funds.
“With falling interest rates on savings accounts and fixed deposits, these instruments are becoming less attractive to investors looking for both safety and returns. Under such a scenario, liquid funds and money market funds become feasible alternatives to invest in,” said Aggarwal, as quoted by MINT.
“These schemes invest in high-quality, short-term securities, which have a fair degree of safety and yet retain high liquidity. As a result, they are ideal for investors looking to park surplus funds without having to lose quick access to them.”
Liquid mutual funds allocate sums in debt and money market securities, with a maturity period of up to 91 days. As many as 39 schemes are available in this category of mutual funds and a total assets under management of Rs 5.42 lakh crore, as per The Association of Mutual Funds in India (AMFI).
In contrast, money market funds comprise of investments in money market instruments that have a maturity of upto one year. With 25 schemes available in these funds, the latest AMFI data as on July 31, 2025, suggests money market funds have a total assets under management of upto Rs 3.37 lakh crore.
“Money market funds also provide slightly higher returns by allocating funds to short-term instruments,” Aggarwal said. “Both categories generally deliver better yields compared to savings accounts and even short-term FDs, making them a more efficient option for short-term financial needs. As a result, they are especially useful for maintaining emergency funds or managing temporary cash requirements without compromising on safety.”
Another form of debt funds is corporate bond funds, which includes schemes that comprise a minimum of 80 per cent investment in corporate bonds only in AA+ and above-rated corporate bonds. According to AMFI, there are 21 schemes available for investors in this category and a total assets under management of Rs 2.05 lakh crore.
Preeti Zende, founder of Apna Dhan Financial Services, said: “These three financial instruments have different features and uses. So, which one to invest in depends on your investment horizon. If your investment horizon is very short (a few days to three months) and you prioritise liquidity and safety, liquid funds are the preferred choice.”
“If you can hold investments for a slightly longer period (three months to one year) and want somewhat higher returns, money market funds are worth considering.”
Given RBI’s cuts, investors now have a lower incentive to invest sums in savings accounts and fixed deposits and are expected to buy various debt mutual fund schemes instead for higher profits.
A team of writers and reporters decodes vast terms of personal finance and making money matters simpler for you. From latest initial public offerings (IPOs) in the market to best investment options, we cover al…Read More
A team of writers and reporters decodes vast terms of personal finance and making money matters simpler for you. From latest initial public offerings (IPOs) in the market to best investment options, we cover al… Read More
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