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Should I use debt funds instead of fixed deposits?

Dhirendra Kumar makes a case for ultra-short-duration funds over and above fixed deposits

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I have decided a 70:30 equity and debt allocation for my portfolio. Should I invest in liquid or ultra-short-duration funds or use fixed deposits for the debt part?
- Gaurav

Don't use fixed deposit because tax wise they are not good. Also they come with a rigidity which doesn't allow you to move your funds easily. The advantage with ultra-short-duration funds is that you have the flexibility to move your money. One can take out any proportion of money without any rider. While in the case of breaking a fixed deposit there can be a penalty clause or one may get less. Even from the tax point of view, fixed deposits are not efficient. So go with ultra-short-duration funds to fulfil your fixed income allocations.