You Can Earn 6–7% with Debt Funds

Most of us keep a decent chunk of our money in savings bank accounts for convenience and safety. While that’s understandable, have you ever stopped to ask: Is your money really working for you?

Savings accounts typically offer 2% to 4% annual interest. This rate hasn’t changed much, even with rising inflation and growing financial awareness. Meanwhile, debt mutual funds, a low-risk and flexible investment option, can offer 6% to 7% per annum—sometimes even higher. The question is: why leave your money idle in a bank account earning half the return, when you have a smarter alternative?

Those days are gone, when the investor use to keep his funds in savings’ banks account and got 6 to 7%  yearly interest. Nowadays, the savings bank interest rates had gone down to 2.5 to 4% approx. in India.  Why still keep huge funds in savings bank account with interest lower than the inflation in the country.  Invest in debt funds for the same kind of safety and liquidity.

The Problem with Savings Bank Accounts

Savings accounts are great for day-to-day transactions, bill payments, and short-term cash needs. But for anything beyond that, they fall short.

• Low Returns: With most banks offering 2.5%–4%, your money barely beats inflation—if at all.

• Taxable Interest: The interest earned on your savings account is fully taxable as per your income slab, further eroding real returns.

• Idle Funds: People often leave large balances in savings accounts for “just in case” scenarios, but that money could be working harder elsewhere.

Start Debt Mutual Funds to beat inflation

Debt mutual funds invest in government securities, corporate bonds, and other fixed-income instruments. They aim to provide stable and predictable returns—without the rollercoaster ride of equity markets. Importantly, certain categories of debt funds (like liquid, ultra-short duration, and corporate bond funds) are designed to offer low risk and high liquidity, making them ideal substitutes for idle cash.

Here’s why they make sense:

1. Better Returns

Over the past few years, good-quality debt funds have consistently delivered 6% to 7% returns annually. That’s nearly double what you’d get from a regular savings account.

2. Flexibility & Liquidity

Many debt funds, especially liquid and overnight funds, offer redemption within 24 hours on business days. Some even offer instant redemption for amounts up to ₹50,000 per day. That’s almost as flexible as a bank account!

3. Low Risk

If you’re risk-averse, you can choose funds that invest only in AAA-rated securities or government bonds. These are among the safest instruments in the market.

4. Tax Efficiency

If you hold debt funds for more than three years, you benefit from indexation, which adjusts the cost of investment for inflation. This reduces the tax liability on long-term capital gains, often significantly lower than the tax on savings account interest.

5. Professional Management

Your money is managed by experienced fund managers who actively monitor the credit quality and interest rate environment—far better than letting cash sit idle in your bank.

Real-Life Example

Let’s say you keep ₹5 lakh in your savings account, earning 3% interest. That gives you ₹15,000 a year before tax.

If instead, you invest it in a high-quality debt fund earning 6.5%, that’s ₹32,500 per year. Over 5 years, that’s an extra ₹87,500—without taking much additional risk.

When to Still Use a Savings Account

Of course, savings accounts still have a role to play:

• For emergency cash that you might need instantly

• For managing monthly bills and transfers

• For short-term parking (a few days or less)

But anything beyond that? Consider moving it to a debt fund.

At the end,

In today’s world, where every rupee counts, it’s time to stop letting your money nap in a savings account. Debt mutual funds offer better returns, liquidity, safety, and tax advantages—all without locking your funds or exposing you to high volatility.

Think of it this way: if your money could earn 6–7% safely and flexibly, why settle for 2–4%?

Make your idle money work smarter. A small shift today can lead to big gains tomorrow.

To start debt funds, call 9886568000

Most people keep a chunk of their money in savings bank accounts for easy access and safety. While this approach offers convenience, it usually comes at the cost of lower returns. Typically, savings accounts in India offer interest rates ranging from 2.5% to 4% per annum, depending on the bank and the amount parked. Over time, especially when adjusted for inflation, this return may not help grow your money in real terms.

To start debt funds, call 9886568000

That’s where debt mutual funds step in as a viable alternative for conservative investors. Debt funds invest in fixed income instruments like government securities, corporate bonds, treasury bills, commercial papers, and other money market instruments. They aim to generate steady and relatively safer returns without the volatility associated with equity markets.

Let’s explore how debt funds can outperform your regular savings bank returns.

Understanding Debt Fund Returns

Over the last few years, various categories of debt mutual funds have offered returns in the range of 5% to 8% per annum, depending on the interest rate environment and the credit quality of the securities involved. For example:

• Liquid Funds: Typically invest in very short-term instruments and offer returns of around 5% to 6% per annum. These are ideal for parking money you might need in a few weeks or months.

• Ultra Short Duration & Low Duration Funds: These have slightly longer maturity profiles and can offer returns in the range of 6% to 7% annually.

• Corporate Bond Funds: Invest in highly rated corporate debt and have historically returned between 6.5% and 8%, depending on the credit and interest rate cycle.

• Gilt Funds: These invest in government securities and are considered very safe. Their returns can vary more, but in a falling interest rate environment, they can outperform even equity funds at times.

Beat Your Savings Bank Returns with Debt Funds

1. Higher Average Returns: The biggest edge debt funds have is the potential for higher returns. A well-chosen debt fund can easily beat a 3% bank savings interest rate.

2. Tax Efficiency: If you hold debt funds for over three years, you become eligible for long-term capital gains tax with indexation. This means your tax is calculated on the real gain (after adjusting for inflation), which can significantly reduce your tax liability. In contrast, interest from a savings account is taxed at your income tax slab rate.

3. Liquidity: Many debt funds, especially liquid and low-duration funds, offer good liquidity. Liquid funds allow redemption within 24 hours on business days, making them a decent substitute for savings accounts in terms of access.

4. Low Risk (with the Right Fund): If you choose high-quality, low-duration debt funds with low credit risk, you can achieve better safety and returns than just leaving money idle in a savings account.

How to Choose the Right Debt Fund

To beat your bank savings return, you don’t need to take high risks. Here’s what to consider:

• Investment Horizon: For short-term needs (a few months), opt for liquid or ultra-short duration funds. For slightly longer-term parking, look into short-duration or corporate bond funds.

• Risk Profile: Avoid funds with exposure to low-rated corporate debt unless you’re comfortable with credit risk. Stick to funds with high-rated instruments (AAA or government securities).

• Expense Ratio: A lower expense ratio means more of the return stays in your pocket.

• Fund History: Look for consistent performers over 3–5 years with transparent portfolio disclosures.

Summary

Debt mutual funds are an excellent option to optimize returns on idle cash that would otherwise sit in a low-interest savings bank account. While they come with some risk, this risk is manageable with proper research and fund selection. Over the long run, this strategy not only helps you beat inflation but also grow your wealth more effectively than traditional savings options.

If you’re sitting on extra cash that you don’t immediately need, consider shifting a portion of it to suitable debt funds. With the right balance of safety, liquidity, and return, you can make your money work harder for you.

Choose the best debt funds to beat inflation, call 9886568000