Fixed Deposit or Debt Fund?

So you have some extra cash which you don't want to use, atleast for now. So , what to do with it? Forget high-risk investments aka equities, equity funds etc as of now. Here we are talking about good old bank FDs or new age Debt Funds.. Well, both have their pros and cons, and hence you have to understand and decide what you are comfortable with.. Here are some pointers to help you..

Always calculate post-tax return while comparing...
Yes, in case of FD you need to pay tax on earnings according to the tax-bracket you fall in. So your actual return could be much lower than those beautifully advertised figure. In case of debt fund there is only one simple Dividend Distribution Tax (DDT), which is deducted at source. hence what you get in hand from debt funds is purely tax-free.

Liquidity?
This is where debt funds score largely over FDs. Debt funds are virtually like savings account. Deposit, withdraw, whenever. (though it's not as instant as a savings account)

Penalty and Loads..
Most of the banks charge a penalty on closing an FD before schedule. Be aware of the charge. And add to that some banks don't even allow premature withdrawal in case of special rates. However, on the other hand most debt funds don't have any entry/exit loads, barring few. So check that too..

Guaranteed Returns
Here is where FDs smile. Mutual Funds, by law, cannot guarantee returns. And in fact for very short term like 1-3 months, they might be volatile.