“Where should I park money for 1–2 years if not in a Fixed Deposit?” The post-tax return on FDs simply isn’t attractive enough for many investors — especially those in the highest tax brackets, who end up losing a large chunk of interest to tax.
What’s often missed in this conversation is that FD returns are locked in the moment you book them. Every other instrument analysed here carries some degree of return variability — and investors don’t always appreciate that, in some mutual fund categories, there’s a small but real chance that capital doesn’t grow at all over the holding period. So if you don’t have a hard stance that you need the money in 1 or 2 years, or it is just being parked, you can look at other instruments that offer a chance of higher returns, with the risk of negative returns as well.
About the author: Jay Sheth is a SEBI-registered investment adviser and a member of Fee-only India, a group of fixed-fee-only advisors. You can contact him via his website, shwealth.in.
I looked at five instruments to understand their historical returns, the probability of a negative outcome, and the probability of a higher outcome. Rolling returns are computed from January 2013 to June 2026 for Nippon GILT, Kotak Arbitrage, ICICI BAF, and Kotak Hybrid Conservative; Kotak Equity Savings only has data from January 2015 to June 2026, so its numbers are drawn from an 11-year window rather than the fuller 13+ years used for the other four. That means Equity Savings’ distribution doesn’t include 2013–14 — years that happened to be unusually strong for Gilt and BAF — so treat cross-category comparisons involving Equity Savings as directionally useful rather than perfectly apples-to-apples.
Liquid funds are deliberately excluded — their returns and tax treatment resemble FDs closely (though they aren’t taxed until redemption), and they’re better suited to emergency funds or horizons under a year.
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The funds compared: Nippon India Gilt Fund, Kotak Arbitrage Fund, Kotak Equity Savings Fund, ICICI Prudential Balanced Advantage Fund (BAF), and Kotak Hybrid Conservative Fund.
A note on what this analysis does and doesn’t measure. This is a study of return distributions at the 1-year and 2-year mark — it says nothing about the path along the way. Hybrid Conservative and Equity Savings funds absolutely can and do post negative monthly NAV movements; that’s expected for any fund with equity exposure. What this data shows is that if you commit to the full 1–2 year holding period rather than needing the money on short notice, the eventual outcome has historically been positive far more consistently than month-to-month volatility might suggest. If there’s any real chance you’ll need the money early, monthly volatility is the relevant risk, not the 1–2 year distribution shown here.
A note on scheme selection. The table below shows one scheme per category, and that scheme isn’t necessarily representative of its category. Arbitrage is a fairly mechanical, low-dispersion strategy — most arbitrage schemes across AMCs tend to deliver similar returns because they’re all doing the same basic trade (capturing the cash-futures spread). So the Kotak Arbitrage numbers here are a reasonably fair proxy for arbitrage funds as a category. BAF, Hybrid Conservative, and Equity Savings give the fund manager much wider discretion over net equity exposure, hedging levels, and asset allocation, so returns can vary meaningfully between schemes in the same category — worth keeping in mind if you’re evaluating a specific fund rather than the category in general.
Calendar year returns (2013–2025)
| Year | Nippon GILT | Kotak Arbitrage | Kotak Equity Savings | ICICI BAF | Kotak Hybrid Conservative |
|---|---|---|---|---|---|
| 2013 | 3.1% | 9.4% | – | 10.7% | 4.4% |
| 2014 | 20.0% | 9.7% | – | 30.0% | 20.5% |
| 2015 | 7.9% | 8.0% | 7.1% | 8.5% | 6.6% |
| 2016 | 18.1% | 7.2% | 7.2% | 8.5% | 14.2% |
| 2017 | 4.6% | 6.4% | 14.7% | 20.4% | 11.5% |
| 2018 | 8.7% | 6.8% | 5.0% | 4.0% | 1.3% |
| 2019 | 14.2% | 6.7% | 8.6% | 11.4% | 12.7% |
| 2020 | 11.9% | 4.8% | 11.4% | 12.4% | 15.2% |
| 2021 | 2.8% | 4.6% | 12.2% | 15.8% | 14.5% |
| 2022 | 3.0% | 5.1% | 7.9% | 8.6% | 5.7% |
| 2023 | 7.4% | 8.1% | 17.2% | 17.3% | 15.6% |
| 2024 | 9.8% | 8.4% | 12.8% | 13.3% | 12.7% |
| 2025 | 4.7% | 7.0% | 9.1% | 12.8% | 6.5% |
None of the five instruments has posted a negative calendar-year return. Arbitrage funds are the most consistent, though they’ve never produced a double-digit calendar-year return. ICICI BAF stands out for consistently higher returns.
That said, calendar-year figures are point-to-point (January 1 to December 31) and depend heavily on where the year starts and ends. Rolling returns and their distribution give a far more realistic picture of what an investor entering at a random point in time would actually experience.
One-year rolling returns
| Nippon GILT | Kotak Arbitrage | Kotak Equity Savings | ICICI BAF | Kotak Hybrid Conservative | |
|---|---|---|---|---|---|
| Average | 9.0% | 7.0% | 10.2% | 13.9% | 11.2% |
| Min | -1.7% | 3.5% | -9.6% | -19.4% | -2.2% |
| Max | 22.8% | 10.7% | 34.2% | 58.7% | 30.9% |
As expected, BAF delivers the highest average and maximum one-year return — but also by far the deepest drawdown, at -19.4%. That drawdown traces back to the COVID crash in early 2020, when equity markets fell sharply over a matter of weeks; it’s a market-wide event rather than a quirk of this specific scheme. Arbitrage funds, over a one-year holding period, have never turned negative; the worst one-year outcome was still +3.5%. Gilt and Hybrid Conservative funds also show comparatively shallow drawdowns after one year.
One-year return distribution
| Nippon GILT | Kotak Arbitrage | Kotak Equity Savings | ICICI BAF | Kotak Hybrid Conservative | |
|---|---|---|---|---|---|
| Less than 0% | 1.2% | 0.0% | 1.9% | 3.4% | 1.2% |
| 0–5% | 30.6% | 17.2% | 9.8% | 8.1% | 14.6% |
| 5–8% | 14.3% | 55.0% | 25.3% | 14.5% | 19.9% |
| 8–10% | 13.8% | 24.4% | 20.0% | 13.0% | 8.9% |
| 8–15%* | 22.2% | 3.3% | 26.0% | 26.9% | 26.9% |
| 15%+ | 17.9% | 0.0% | 17.0% | 34.0% | 28.4% |
For an investor targeting 8%+ returns, Equity Savings, BAF, and Hybrid Conservative all show a 60–65% probability of clearing that bar. Kotak Hybrid Conservative, however, is taxed at marginal (slab) rates, which makes it more attractive to investors in the lower or zero tax brackets rather than the highest one. Gilt funds also show a reasonable probability of higher returns, but their performance is driven mainly by interest rate movements — over the past five years they haven’t consistently beaten fixed deposits. If we assume 6.5% FD rate, for an investor in the highest tax bracket, the post tax returns are ~4.3%. For an equity instrument if taxed at 12.5%, it needs to give 5% pre-tax returns. BAF and Equity Savings have almost 90% probability of giving more 5% returns.
Two-year rolling returns
| Nippon GILT | Kotak Arbitrage | Kotak Equity Savings | ICICI BAF | Kotak Hybrid Conservative | |
|---|---|---|---|---|---|
| Average | 9.2% | 6.9% | 10.5% | 13.3% | 11.2% |
| Min | 2.0% | 4.1% | -1.2% | -6.7% | 1.9% |
| Max | 16.4% | 10.0% | 22.2% | 33.1% | 21.1% |
Extending the horizon to two years doesn’t change average returns much, but it does change the risk picture. Hybrid Conservative no longer shows any negative two-year outcome — its minimum turns positive at 1.9%. Maximum returns compress for every instrument except Arbitrage funds, which stay roughly where they were.
Two-year return distribution
| Nippon GILT | Kotak Arbitrage | Kotak Equity Savings | ICICI BAF | Kotak Hybrid Conservative | |
|---|---|---|---|---|---|
| Less than 0% | 0.0% | 0.0% | 0.2% | 1.6% | 0.0% |
| 0–5% | 14.3% | 12.2% | 3.0% | 1.5% | 2.5% |
| 5–8% | 24.5% | 66.4% | 17.9% | 8.9% | 18.3% |
| 8–10% | 21.2% | 21.4% | 23.9% | 14.5% | 13.1% |
| 8–15%* | 36.9% | 0.0% | 46.8% | 39.9% | 55.5% |
| 15%+ | 3.0% | 0.0% | 8.2% | 33.6% | 10.6% |
(bucket as labelled in the original data)
Equity Savings and Hybrid Conservative funds show a similarly low probability of returning less than 5% over two years. Between the two, Hybrid Conservative has a somewhat higher probability of delivering better returns — but which one suits you depends entirely on your tax bracket. ICICI BAF, meanwhile, has close to an 88% probability of returning more than 8% over two years, and only about a 3% probability of returning less than 5%. Arbitrage funds again show a distribution similar to their one-year numbers — tightly clustered, with a 12.2% chance of landing in the 0–5% band and no observed instance going negative.
Conclusion
There’s no single “best” FD alternative for a 1–2 year horizon — the right choice depends on how much volatility you can tolerate, whether you might need the money before the horizon is up, and your tax bracket, since taxation varies significantly by category:
- Capital protection first: if capital protection matters more than anything else — including the possibility of needing the money early — Arbitrage funds are the standout. Over both one- and two-year periods, they’ve never produced a negative return, and the return band is narrow and predictable. Held for over a year, they’re also taxed as equity funds, which is typically more efficient than an FD for investors in higher tax brackets.
- Full-horizon commitment, some volatility accepted: Equity Savings and Hybrid Conservative funds both show 60%+ odds of clearing 8% and increasingly low odds of a loss as the holding period stretches to two years. The deciding factor between them is tax treatment — Equity Savings funds usually qualify for equity taxation, while Hybrid Conservative is a largely debt-oriented category taxed at your slab rate. That makes Hybrid Conservative more attractive if you’re in a lower tax bracket, and less so if you’re in the highest one.
- Highest average return, highest drawdown risk: Balanced Advantage Funds (BAF) offer the highest average returns by a clear margin, but that comes with real drawdown risk — the worst one-year outcome was close to a 20% loss, driven by the COVID crash. This category suits investors who can stomach a sharp market-wide shock and don’t need the money on a fixed date within the 1–2 year window.
- Gilt funds: Returns here are driven by interest rate cycles rather than a structural return premium, and Gilt hasn’t reliably beaten fixed deposits over the last five years. Unless you have a specific view on interest rates or want to take a tactical bet on rate movements, Gilt funds are better suited to a long-term debt allocation than as a 1–2 year FD-replacement instrument.
The broader point of this analysis is one that FD investors often overlook: the “safety” of a fixed deposit is really just the elimination of return variability, not a guarantee that it will be the best after-tax outcome. Several categories above have historically offered both a low probability of loss and a meaningfully better post-tax return than an FD, provided the money is genuinely earmarked for the full holding period — but that history is not a promise, and each carries a different risk and tax profile that needs to be matched to the investor, not just the return table.
Disclaimer: Nothing in this article is my solicitation, recommendation, endorsement or offer. Past performance of an index, individual or a combination of mutual fund schemes is no guarantee for future performance as to the returns and risks. We do not take any responsibility for investment decisions based on this model. Please consult your advisor before making any decisions on your portfolio construction. Registration granted by SEBI, BASL membership, and NISM certification do not guarantee the intermediary’s performance or provide any assurance of returns to investors. Investment in the securities market is subject to market risks. Read all the related documents carefully before investing.