When it comes to risk-free investments, Fixed Deposits (FDs) and Debt Funds are two common options. Although FDs have been the more popular choice, Debt Funds are gaining popularity - because they have the ability to give better returns than FD and are just as safe as FDs.

In fact, according to a report, 72 Debt Funds of 213 satisfied the test of having Credit Risk equal to, or better than a Fixed Deposit.

Let us analyse the main differences between FDs and Debt Funds.

Particulars	Debt Fund	Fixed Deposit
Returns	5.25% - 7.25%	6.0% to 8.0%
Dividends	Yes	No
Risk	Low to moderate	Low
Liquidity	High	Low
Mode of investment	SIP or lump sum	Only lump sum
Penalties or charges on early withdrawal	Varies based on type of Mutual Fund	Yes
Other expenses	Expense ratio is involved	No management costs
Taxes	STCG as per income tax slab; LTCG @12.5% (Gains above ₹1.25 lakh are taxed at 12.5%) without indexation benefits What's the indexation benefit?Indexation benefit accounts for inflation. This method ensures your returns are taxed fairly.	As per income tax slab