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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 of the bank fixed deposit is generally the main drawback compared with an open-ended debt fund?

The main drawback is that premature withdrawal of a bank fixed deposit usually attracts a penalty and a lower interest rate. An open-ended debt fund can be redeemed at NAV on any business day, subject to any exit load, so it suits uncertain short-notice needs better.

  1. APremature withdrawal usually attracts a penalty on the interest rateCorrect
  2. BIts principal value fluctuates daily with market prices
  3. CIt cannot be opened by a senior citizen
  4. DIt carries no deposit insurance cover of any kind

Explanation

Bank FDs typically allow premature closure only with a penalty that lowers the applicable interest rate, whereas open-ended debt funds can be redeemed at NAV on any business day (subject to any exit load). Daily NAV fluctuation is a feature of the fund, not the FD. FDs are available to senior citizens and are covered by DICGC up to the prescribed limit.

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