Post Office FD Vs Debt Fund: Where to invest Rs 5 lakh to get more profit!

Indian investors are always looking for safe and high return investment options. If you also want to invest your lump sum amount and are looking for a better option for this, then know here where you can get more profit on investing Rs 5 lakh in a Post Office FD or a Debt Fund.

The choice of investment always depends on the financial condition, goals, and risk bearing capacity of the person. In such a situation, when it comes to a lump sum investment of Rs 5 lakh or Rs 10 lakh, it becomes more important for people to choose the right option because such a large amount cannot be invested anywhere just like that. In such a situation, like a bank, a Post Office FD has also been a safe and reliable investment option for years. At the same time, a debt fund is also emerging as a popular option in recent years. People consider it an option that gives better returns than FD. Let us understand where an investment of Rs 5 lakh can give more profit.

Features of Post Office Fixed Deposit (FD)

Security: It is one of the safest investment options as it is backed by the government.

Fixed returns: You get to know the interest rate at the beginning of the investment, which makes it easier to estimate the returns.

Lock-in period: Available for all tenures, such as 1, 2, 3 and 5 years.

Regular interest payment: You can choose to receive interest on a monthly, quarterly or yearly basis.

How much will be the profit on an investment of Rs 5 lakh?

Suppose you are investing in a 5-year FD of the post office. This FD is currently getting 7.5% interest. If you invest Rs 5 lakh for 5 years, you will get Rs 2,24,974 interest in 5 years and a total of Rs 7,24,974.

Features of debt funds

Debt funds are a category of mutual funds. It invests mainly in fixed-income securities such as government bonds, corporate bonds, debentures, commercial papers and treasury bills. Its returns are market based. Know the features of debt funds.

Diversification: There are many types of debt funds such as liquid funds, ultra-short duration funds, short duration funds, medium duration funds and long duration funds, in such a situation you get the opportunity for diversification.

Liquidity: These are more liquid than FDs, because you can sell your units on any working day (some funds may have an exit load).

Professional management: Fund managers manage your money, who take investment decisions based on market conditions.

Return on investment of Rs 5 lakh

The return of a debt fund is based on performance and may change in the future. On average, many debt funds have given a return of 6-9% in the last few years.

Suppose you invest Rs 5 lakh in it for 5 years and it is getting a return of 9%, then you will get Rs 2,69,311 as interest. In this way, you will get a total of 5,00,000 + 2,69,312 = Rs 7,69,312. Although this example is only approximate, the actual return will depend on the performance of the fund.

Risk: Debt funds have less risk than equity funds. This includes interest rate risk and credit risk.

Which option to choose?

This choice depends on your personal needs-

Risk bearing capacity

If you do not want to take any risk at all and want 100% safety of your capital, then post office FD is better for you. If you can take a little risk and want more returns than FD, then debt fund is a good option.

Investment period

For short-term (less than 3 years), one can look at post office FDs or short-duration debt funds. For long-term (more than 3 years), debt funds can be more tax efficient and offer better returns due to indexation benefits.

Liquidity

If you may need your money quickly, debt funds (especially liquid funds) offer more liquidity than FDs. FDs may attract a penalty for premature withdrawal.

FAQs

Q1: What is the main difference between post office FDs and debt funds?

A1: Post office FDs are government-backed, offer fixed interest rates and are very safe. On the other hand, debt funds are market-linked, invest in bonds, may offer slightly higher returns but also have a little risk.

Q2: Which option is safer for an investment of Rs 5 lakh?

A2: Post office FD is a safer option as it is backed by the government and guarantees capital protection. Debt funds have market and credit risk.

Q3: Can debt funds give higher returns than FDs?

A3: Yes, debt funds have the potential to give higher returns than FDs, especially in the long term and when interest rates are high. However, these returns are not fixed and depend on market fluctuations.

Q4: How are debt funds taxed?

A4: If you sell a debt fund before 3 years, the gain is added to your income and is taxed as per your tax slab. If sold after 3 years, it is taxed at the rate of 20% with indexation benefits, which reduces the tax liability.