Is it a good time to switch money from FD to mutual funds?

Is it a good time to switch money from FD to mutual funds?

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I want to invest a lumpum amount in bond. Is it a good time to switch money from fixed deposits to mutual funds? If yes, what kind of fund would be better?
–Jyoti Prakash Singh 

You have not mentioned your goal, investmenthorizon or risk profile. It is impossible to answer an investment query without these basic details.

Well, many investors prefer debt mutual funds over fixed deposits to invest for short-term goals. Even you can do that if you understand how debt funds work and the advantage and disadvantage of them vis-a-vis fixed deposits. One, unlike fixed deposits, debt mutual funds do not guarantee any returns. The returns from debt funds are dependent on the performance of the debt market. Two, debt mutual funds invest in debt instruments and they are riskier than fixed deposits. Three, debt funds can offer you marginally higher returns. Four, if you invest for more than three years, debt funds may offer superior after-tax returns. If debt funds are sold after three years, they qualify for long-term capital gains tax of 20 per cent with indexation benefit. With indexation benefit, you pay very little tax in inflationary economy like India. There is no tax advantage for investing in debt funds for short periods. They are taxed just like fixed deposit if the investment tenure is below three years. The returns are added to the income and taxed as per the income tax slab applicable to the investor.

It is not possible to suggest a scheme for you without your investment horizon. You should pick up a debt fund based on your investment horizon. For example, you should pick a liquid fund to park money for a few weeks or months. You should invest in an ultra short-term scheme if your investment horizon is just a few months to a year. You may choose a short-term scheme or a dynamic bond fund if you are investing for a few years.