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NISM Certifications · NISM-Series-X-B: Investment Adviser (Level 2) · Comparison of Products Across Categories

When an investment adviser compares a bank fixed deposit with a debt mutual fund for a client who may need money at short notice, which feature is generally true of the bank fixed deposit?

A bank fixed deposit offers a contractual interest rate fixed for the tenure, and premature withdrawal is usually possible but with a penalty. It does not have a daily NAV or market-linked exit value like a debt mutual fund, which makes returns more predictable.

  1. AIts value on premature withdrawal is linked to the market yield on the date of exit
  2. BIt has a known contractual rate for the chosen tenure, though premature withdrawal may attract a penaltyCorrect
  3. CIt is subject to a daily NAV that can fall below the amount invested
  4. DIt carries no credit exposure to the issuer at all

Explanation

A bank FD offers a rate fixed at the time of deposit for the tenure. Premature withdrawal is usually allowed with a penalty on the rate. Daily NAV and market-linked exit value are features of debt mutual funds, not FDs. Credit exposure to the bank still exists, subject to deposit insurance limits.

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