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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 money at short notice, which feature is generally the key advantage of the debt mutual fund over a bank fixed deposit?

The main advantage is liquidity at NAV: open-ended debt fund units can be redeemed on any business day at the prevailing NAV, subject only to a possible exit load, whereas a bank fixed deposit usually carries a premature withdrawal penalty. Guarantees and deposit insurance belong to bank deposits.

  1. AGuaranteed return of principal and interest by the issuer
  2. BAbility to redeem units at the prevailing NAV without a fixed-term premature withdrawal penalty, subject to any exit loadCorrect
  3. CInterest rate fixed at the time of investment for the whole term
  4. DDeposit insurance cover on the invested amount

Explanation

Open-ended debt fund units can be redeemed at the prevailing NAV on any business day, subject only to any exit load. Bank FDs carry premature withdrawal penalties. Guaranteed returns, fixed rates and deposit insurance are features of bank FDs, not mutual funds.

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