Post-budget income funds (debt funds) aren't as attractive as they once were. Fixed deposits (FDs) have suddenly come into the reckoning. The hitherto mutual fund investor would now like to know whether post-budget he should migrate to FDs and desert income funds. Over here, we have tried to answer that question.

How they stack up

Particulars	Bank FDs	Company FDs	Debt funds
Returns	Assured	Assured	Not Assured
Liquidity	High	Low	High
Cost to the investor	No	No	Yes
Risk	Low	Low (in AAA)	Low to Medium
Tax Benefits	High	Low	Medium (For over 1 Year, enter Growth Option)

Returns from bank and company deposits are fixed and the rate depends on the tenure of the deposit.

Bank Deposit Rates

Bank Fixed Deposits	1 year (%)	2 years (%)
INDUSIND BANK	10.00	10.00
THE LORD KRISHNA BANK	10.00	10.50
THE SHAMRAO VITHAL CO-OP. BANK LTD	10.00	10.50
GLOBAL TRUST BANK LTD	9.50	9.50
THE KARUR VYSYA BANK LTD	9.50	9.50
IDBI BANK	9.25	9.25
CITIBANK	9.25	9.50
THE VYSYA BANK LTD	9.25	9.50

Mentioned above are some good banks that still give returns of over 9% p.a. for a 12-month deposit. In this low interest rate scenario this must be considered as attractive. The returns from company deposits are low as compared to banks depending upon the credit quality of the company. A ‘AAA’ company will offer a lower return than a AA/A rated or un-rated company. As far as mutual funds are concerned, returns are never assured. In case of bank and company deposits whereas the principal is assured, in debt funds the principal too can erode over the short-term. As far as dividends are concerned, debt funds have been known to declare dividends ranging from 10-12%. To get latest dividend payouts, click here. To be alerted about latest dividend payouts, click here.

Liquidity
Banks deposits and debt funds offer relatively more liquidity vis-à­¶is company deposits. In case of a bank deposit, the investor can approach the bank any time and break his deposit and the money is immediately credited in his bank account. In case of open-ended debt funds, the investor has to simply submit his redemption request anytime without any lock-in period. On the other hand, company deposits are illiquid as in some cases the investor cannot break his deposit for a pre-defined lock-in period and in some case on a premature withdrawal he may have to forfeit the interest of his deposit altogether.

Load
Load is charged while entering or exiting an investment. In case of bank and company deposits there are no loads, which means an investor does not incur any cost while making or surrendering his deposit. By and large, debt funds do not have a load, or if at all it is minimal (upto 1%). However, debt fund do charge an exit load if the investor exits from the fund before a pre-defined period (generally 6 months). If an investor withdraws his bank FD prematurely, he will get interest for the commensurate period of investment and there is no penalty per se. If we take exit loads into consideration bank deposits would seem to score over debt funds on that front.

Risk
Banks deposits have the lowest risk, but the credibility of the bank is an important criterion for consideration. Also, deposits with scheduled banks are insured upto Rs. 100,000 by the Government of India. Likewise the risk on company deposits depends on the credit quality of the company i.e. an investment in a ‘AAA’ rated company is safer as compared to investment in an AA or unrated company. Debt funds carry the highest risk (relatively) as investors are exposed to not just credit risk (as is the case with FDs), but also interest rate risk and liquidity risk. Even the principal invested in a debt fund is not assured and can get eroded although this is rare and is witnessed only over the short term.

Tax Benefits
Interest income upto Rs 9,000 is exempt from tax under Section 80L. An additional sum of Rs 3,000 as interest income from government securities (Gsecs) is also exempted. Earlier investments in bank deposits and deposits of housing finance companies were eligible for Section 80L benefit. In the latest budget, dividends from debt (income) funds have also been extended this benefit. So in effect an investor can utilise the Rs 9,000 Section 80L benefit with interest income from bank deposits, housing finance deposits and dividends from debt funds.

Post-budget, debt funds (dividend option) have become less attractive as dividends are now taxable (once 80L limit is exhausted) while they were tax-free in the hands of investor earlier. However, debt funds are still attractive if the investor opts for the growth option of the debt fund and stays invested for over 12 months. To see how debt schemes of various fund houses have fared, click here Considering all points outlined above, good bank deposits and housing finance company deposits giving a return of 9% or more p.a. are definitely worth a look. Although debt fund have given phenomenal returns over the past 12 months by riding the interest rate cuts, we are unlikely to witness a repeat performance this year.

The investor has the options in front of him and must choose the one that fits best into his risk profile given the liquidity constraints and tax benefits of each investment be it a bank deposit, company deposit or a mutual fund.

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