This question is to be answered in terms of security of the money as well as how profitable the investment is.
Let's say a person is in India under 30% tax slab.
In India, FDs are more secure than MF, and generate upto 7% pa returns while highly secure MF can get something around 10%.
Another advantage of MFs are into taxation and safety over shutting down of a bank -
- Debt Funds kept over 3 years have around 10% tax to be paid (not sure)
- Equity funds kept over 1 year have only 10% tax to be paid on returns (not sure again).
- Another advantage is that if Banks shuts down in unfortunate circumstances, then they are liable for only 1 lakh INR. In this sense, MFs looks like safer options than keeping your money in banks.
I came up with two strategies -
- Open 10 bank a/c and invest 10 lakhs into each one of them in FDs. This is very much safe as we are not into the risk of any bank getting shut down. Also, we can get around 7% pa returns.
- Invest into 3 year debt funds (MF) as they are very very safe (not sure, please share your knowledge) and enjoy the tax benefits.
If possible, please take 10 lakhs as investment amount for period of 3 years, and show the real difference of the returns in both strategies mentioned above, keeping into account that the person falls under 30% tax slab.