Most investors prefer investing in debt mutual funds as compared to bank fixed deposits because there is a tax advantage. The interest earned on bank fixed deposits is taxed at the income tax rate applicable to your taxable income. Hence, if your taxable income is in the highest tax rate i.e., 30%, then you will pay the same on bank FD interest. However, if debt mutual fund is redeemed after 36 months, then LTCG is taxed at 20% with indexation benefit. The cost of investment is adjusted on inflation basis which improves post tax returns for debt mutual funds.