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 individual’s 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 | – |
Provident Funds VS Mutual Funds
PPF is a long-term savings investment option established by the Govt. of India in 1968. It offers tax benefits on withdrawal as well as on contributions.
Mutual Funds-ELSS (Equity Linked Saving Scheme is similar to PPF in terms of tax implications(both enjoy the benefit of 80C). However, the average returns in ELSS in much higher (3 years returns-14- 16%) when compared with PPF.
Safe Investors can also invest in Debt / Liquid / Short Term Mutual Funds. Debt funds allow indexation benefits (tax is lowered, taking inflation into consideration) if you hold them for a period of 3 years.
| Factors | PPF | ELSS | Debt-Short Term Funds |
|---|---|---|---|
| Returns | 8% | 14-16% | 8.5-9.5% |
| Lockin Period | 15 years | 3 Years | NIL |
| Tax Applicable | No Tax | No Tax | Short term and Long Term Capital gain tax with indexation benifit |
PPF INTEREST RATES
| Financial Year | Interest Rate(p.a) |
|---|---|
| 2017-2018 | 7.9% |
| 2016-2017 | 8.1% |
| 2013-2016 | 8.7% |
| 2012-2013 | 8.8% |
| 2011-2012 | 8.6% |
| 003-2011 | 8% |
Recurring Deposits VS Mutual funds
The interest rates on RDs depend on which category you fall under and your choice between different banks. The current interest rates available from different banks range between 4.5% and 7.90% per annum.
| Factor | Recurring Deposit | Mutual Funds-Robo Invest |
|---|---|---|
| Typical Returns | 5-7% | 7-13% |
| Typical Net Return (Post Taxes & Penalties) | 4.5-5.5% (End Of Term) 3-4% If RD Is ‘Broken’ | 7-12% |
| Penalty/Exit Load | 1-2% | 0% |
| Tax | As Per Tax Slab | Debt Less Than 5% Arbitrage – 0% |
| Mode Of Investment | Monthly Automatic | Bi-Weekly/ Monthly Automatic |
| Compounding | Quarterly/ Yearly | Daily |
| Lockin Period | Fixed Term/ Premature With Penalty | NIL |
| Partial Withdrawal | Sometimes | Always Allowed |
Savings Account VS Mutual Funds
One should keep 2-3 months’ expenses in the savings bank account. Further, 3-6 months of regular expenses should be invested in a liquid mutual fund. Anything more than this in the savings bank is an opportunity cost, loss of interest income, and negative returns; if inflation-adjusted returns are considered.
Dividends are Tax free
long-term capital gains tax – 11.33% (including cess and surcharge) or 22.66% with indexation benefit, whichever is lower
| Factor | Saving Account | Liquid Mutual Fund |
|---|---|---|
| Typical Returns | 4-6% | 6-7% |
| Tax (Most Important)* | As Per Tax Slab | 0% after 3 yrs |
| Lockin Period | NIL | NIL |
| Entry Load and Exit Load | NIL | NIL |
| Compounding | Quarterly | Daily |
| Typical Net Return (Post Taxes & Penalties) | 3% | 6-7% |
| Risk Factor | Low | Low |
Mutual Funds VS Real Estate
| Factors | Mutual Funds | Real Estate |
|---|---|---|
| Investment amount | As small as Rs 500 Monthly | Huge lump sum, ranging from lakhs to crores. |
| Redeem | Instant | Partial/Whole redemption of units as one needs |
| Liquidity | Every month is calculated on a per sq. ft. basis | Whole |
| Maintenance cost | Zero | The cost to acquire property approximately include stamp duty (4%-8%), registration fees (1%), legal fees (1.5%) and real estate agent’s commission (1-2% + GST) for buyer. |
| Cost of Buying | NIL | The cost to acquire property approximately include stamp duty (4%-8%), registration fees (1%), legal fees (1.5%) and real estate agent’s commission (1-2% + gst) for buyer. |