More liquid

Debt funds are more liquid and can be considered if you are looking to meet short term goals. One can withdraw with a click of a mouse and there are no penalties if you withdraw after one month of the deposit. One can also make partial withdrawals without hurting entire investments.

Tax efficient

If you fall in the 20-30 per cent tax bracket you should rather go for this instead of fixed deposits. There is also no TDS on debt funds. After one year of investment it is taxed under long term capital gain at either 10 per cent or at 20 per cent with indexation.

Generate regular income

If you are looking to generate regular income then this can be an ideal investment. One can get regular income by opting for dividend option. The dividend received is tax free in the hands of the investor.

Flexibility

Debt funds can be invested on monthly basis like SIP (Systematic Investment Plan). While one can opt for systematic withdrawal plan which is useful for retirees where they receive some amount every month.