Fixed Deposit VS Mutual Funds
| Factors | Fixed Deposit | Debt Mutual Funds |
|---|---|---|
| Typical Returns | 7% | 8-10% |
| Tax (Most Important)* | As Per Tax Slab | Debt Less Than 5% Arbitrage - 0% |
| Lockin Period | Fixed Term/ Premature With Penalty | NIL |
| Compounding | Quarterly | Daily |
| Typical Net Return (Post Taxes & Penalties) | 5-6% | 8-10% |
| Risk Factor | Low | Low |
# Taxation details are as per existing tax laws. The nature of tax will depend based on the individuals tax
Taxes significantly affect income from FDs
While interest from Bank FDs is always taxed at your maximum rate, Debt funds attract almost nil tax after 3 years
and lower tax between 1 and 3 years. Upto 1 year the tax impact for both is similar
The illustration here -an investment of Rs 1 Lakh each ,we've assumed in a given year, all 3 investments deliver a
return of 9% can help you understand the comparison better.
| Factors | Fixed Deposit | Debt Mutual Fund | Equity Mutual Fund |
|---|---|---|---|
| Investment Amount | 100,000 | 100,000 | 100,000 |
| Return (% p.a.) | 9.0% | 9.0% | 9.0% |
| Taxable Income | 9,000 | 1,500 | - |
| Tax Paid (as applicable) | 2,700 | 300 | - |
| Post Tax Returns | 6,300 | 8,700 | 9,000 |
| Post Tax Returns (%) | 6.3% | 8.7% | 9.0% |
| Holding Period | 1 Year | 1 Year | 1 Year |
| Fund Value | 109,000 | 109,000 | 109,000 |
| Inflation | 7.5% | 7.5% | 7.5% |
| Indexed Investment Amount | - | 107,500 | - |