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