Should I invest in a debt fund with a 7.5% return or make an FD with a 10% return?

Often, people choose FD's over debt funds when seeking low-risk, good returns in the long run.

However, a Debt fund with a 7.5% return can outperform an FD with a 10% return.

How?

Because of the way these 2 products are taxed.

Interest from a bank FD has to be declared each year and will be taxed according to the income slab.

Whereas taxation is deferred until redemption for a debt fund and is either a flat 10% or 20% after indexation. (inflating the initial investment using the cost inflation index)

(The 20% option typically implies lower tax!)

Debt funds have a higher risk associated with them, however, over a period of 10 years, these are minimal.

So instead of investing in an FD over for a 10-12 year period, invest that into a debt fund.

Cheers!

#Taxplanning #Investmentplanning #Fixeddeposits #Debtfunds #mututalfunds

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