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Which debt funds can replace bank FDs?

Dhirendra Kumar tells the appropriate category of debt funds to use in place of fixed deposits

Which category of debt funds can suitably replace bank fixed deposits?
- Narsimha

Normally one will be tempted to talk about the kind of debt funds other than the sophisticated ones. But I would like you to keep it very simple. Don't move beyond short-term debt funds. If your fixed deposit was going to be of a very short-term nature, say six months, consider liquid funds. If it was up to one year or one and half year deposit, consider ultra short-term debt funds. If the deposit was going to be for three or five years, stop at short-term debt funds. Don't venture anywhere else because of the ups and downs of the market. When interest rates go up, bond prices go down and you will actually witness a loss. Navigating through debt funds in a manner that you don't face an interim loss is important. So, stop at short-term debt funds.

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