Mutual fund investment for NRI - Investing in Debt Funds Vs Fixed Deposits
Whether you are a resident of India or a non resident Indian (NRI), debt mutual fund investment is always better than investing in NRE or NRO fixed deposit for you because of following reasons:
- India is a developing country and there are more benefits of investing money in mutual funds of a developing country than mutual funds of developed country.
- Debt mutual funds performance depends on interest rate movements and credit ratings of the bonds the funds invested in. A bank fixed deposit is insulated from these things.
- Debt mutual funds also invest in fixed deposits, government bonds, corporate bonds, etc.
- Debt funds do not have a lock in period unless it is a fixed maturity plan.
- Fixed Deposits have lock in period. Your money will be locked for a specified period of time and if you redeem it before maturity, you will get a discounted rate of return whereas in debt mutual funds you can get in and get out any time, except fixed maturity plans (FMP).
- There is no entry load and no exit load in most debt funds.
- The return of debt funds also is not bad than the fixed deposits even after deducting the tax.
- The risk associated with debt fund is very less.
- The average return per year at present is 7 to 7.75 percent and after tax, it would be around 6 percent.
- If you keep money idle in your bank account even for a week, it will give you lesser return of around 2.85 to 3.5 percent per annum, so it is wiser to keep your money in liquid funds which can get you 7 to 7.5 percent per annum, so it is better keep investing money in liquid funds.
- You can have capital gains in debt mutual fund if net asset value (NAV) rises, but that would not happen with a fixed deposit.
One disadvantage of debt funds over fixed deposits is that you can lose money in a debt mutual fund if (NAV) net asset value falls, but that would not happen with a fixed deposit.
Question: What is meant by minimum balance of debt fund? I was browsing through some debt fund details when I came across this:
- Minimum Investment: 10000 INR
- Subsequent Investment: 10000 INR
- Minimum Withdrawal: 10000 INR
- Minimum Balance: 30000 INR
Answer: I do not think there is a minimum balance in debt funds, but minimum investment is 5000 to 10000 depending on which mutual fund you are going to buy.
Best of luck for debt mutual fund investment in India