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Fixed-Income Fund: Alternative to DPS

By Ashikur Rahman Tusar

Software Developer

EDGE AMC Limited

Posted on: 20 Dec, 2023

Realizing that the interest rate on savings accounts isn’t enough to tackle inflation, Rahman decided to start a Deposit Pension Scheme (DPS) with a bank. Satisfied with the interest rate he would get on his savings through DPS, Rahman kept saving 15–25% of his salary through it.

However, one day, when Rahman had an emergency and needed to withdraw his money from the DPS, he was fined and his deposit account was closed since he drew cash before the DPS period was over. This meant that not only would he not receive the attractive return he was hoping for at the end of the DPS period, but the fine would diminish whatever return he had accumulated (if he was lucky enough to accumulate any).

Emergencies like this could happen to any of us. But there’s a great way to get returns similar to those of DPS, if not better, along with more flexibility. Fixed-income funds—which provide attractive returns similar to DPS, if not better, while simultaneously providing the flexibility to withdraw funds at any time without any repercussions—are a great alternative to DPS.

A More Liquid Alternative to DPS: Fixed-Income Fund

A fixed-income fund invests mostly in assets with minimal risk, such as government Treasury bills and bonds and other stable income-generating assets.

When you put your money in a fixed-income fund, you accumulate interest income on top of your savings every week since the fund is concentrated in government Treasury bills and bonds that make guaranteed payments. With profits from such stable assets, fixed-income funds can deliver an annual return of 6–8% on average. The potential returns become even more attractive when interest rates are rising, like today.

Other than the high liquidity allowing one to withdraw funds at any time in addition to the tax benefit of a rebate of up to BDT500,000, fixed-income funds give extra safety because their portfolio is mostly diversified with other stable assets alongside government-guaranteed Treasury bill and bond investments. Essentially, you get steady and decent returns shielded from tax in addition to high liquidity through a fixed-income fund.

Rahman, in our example, not only earns attractive returns that are shielded from tax through a fixed-income fund, but he is also able to withdraw his savings with accumulated interest income at any time. In summary, Rahman enjoys steady and decent returns and high liquidity from a fixed-income fund.

You may take a look at our High-Quality Income Fund if you’re interested in investing in fixed-income funds.

To learn more about mutual funds, you may read our guide on mutual fund investing.