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

While comparing a bank fixed deposit with a debt mutual fund for a client who may need the money at short notice, which feature of the bank fixed deposit is most likely to reduce its liquidity relative to the mutual fund?

Premature withdrawal from a bank fixed deposit usually carries a penalty that reduces the interest earned, which makes it less liquid in cost terms than redeeming a debt mutual fund at NAV, where only an exit load, if any, applies.

  1. APremature withdrawal usually attracts a penalty on the interest rateCorrect
  2. BInterest is always paid only at maturity
  3. CThe principal is not protected at all
  4. DIt cannot be held by a senior citizen

Explanation

Bank FDs allow premature withdrawal, but banks typically levy a penalty that lowers the interest rate paid. A debt mutual fund can be redeemed at NAV, subject to any exit load. The other options are not defining features of FDs.

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