FD vs Mutual Fund Comparator

FD at 7.5% for a 30% slab taxpayer: Pre-tax return 7.5%, net of 30% tax = 5.25% post-tax return. With 5–6% inflation, the real post-tax return is near zero or negative. Senior citizens get higher rates and an additional ₹50,000 deduction under 80TTB on interest income.

Tax-saving FD: 7–7.5% interest, 5-year lock-in, returns fully taxable at income slab rate, gives ₹1.5 lakh 80C benefit. ELSS fund: historical 12–15% CAGR, 3-year lock-in (shortest 80C option), LTCG at 12.5% above ₹1.25 lakh. For investors in the 20–30% bracket investing for 5+ years, ELSS is clearly superior.

FDs are better for: money needed within 1–2 years (avoid market timing risk), investors who cannot tolerate any capital loss, senior citizens needing regular monthly income, and those in the 5% or 0% tax bracket where equity's tax advantage is minimal. Safety and predictability are FD's primary advantages.

Bank FDs are insured up to ₹5 lakh per bank per depositor under DICGC — principal is safe. Mutual funds have market risk and principal can fall. However, diversified large-cap equity mutual funds have never given negative returns over any 10-year period in India historically — though past performance does not guarantee future results.

Indexation adjusts the cost of investment for inflation, reducing capital gains tax on long-term investments. It applied to debt mutual funds held over 3 years but was removed in April 2023 — now all debt funds are taxed at slab rate. FDs have no indexation benefit. Equity funds have LTCG tax at 12.5% with ₹1.25 lakh exemption.