Mutual Funds vs Fixed Deposit – Which one is more Tax efficient?

How to claim Long term capital gain of Rs 1lac from shares/Equity Mutual funds FY 2019-2020 (AY 2020-2021)
September 4, 2020

Mutual Funds vs Fixed Deposit – Which one is more Tax efficient?

We always wondered between debt mutual funds and fixed deposits about the tax effectiveness of both the product. We would try to solve this puzzle for you. Please go through the following graph-

Mutual Funds

Post Tax Returns for Holding Period > 3 Years (Assuming Nil Surcharge)

tax returns

As you may observe from the above that Mutual Funds have a higher post-tax return over fixed deposits despite having the same pre-tax return of 6% in both cases. In addition to this, the advantage of partial redemption sets off with losses in the equity market is also available.

Debt Mutual Funds have an edge over fixed deposits due to Long term capital gain taxation. So if you are in a higher Income Tax bracket, it makes sense to opt for debt mutual funds.

Mr. Mukesh Gupta
Mr. Mukesh Gupta
Mukesh Gupta is the founder and director of Wealthcare. He is Fellow chartered accountant, Certified Financial Planner and Certified Public Financial advisor. He is in financial services industry since 1994. He conducts free money management sessions for corporates and associations on topics related to Personal finance. His previous engagement was with Birla Sunlife group. He regularly writes on topics related to Personal finance and occasionally appear on electronic media.

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