Fixed Deposits or Debt Funds??

Fixed Deposits or Debt Funds??-The main difference for a person in high income tax treatment lies in tax benefit .

1. The Return from FD is completely taxable. i.e the interest income is added the income of a person and he/she should pay tax as per their tax bracket.

2. As far as  debt funds are concerned , the returns are classified as Long capital gains for investments of over 12-months and taxed as follows.
   a.10 per cent  without indexation or
   b.20 per cent with indexation ( refer document page 97, for indexation)

1. X invests  100000 in FD on 15 Apr 2009 and Matures on 14 Apr 2010 with value 108500.Income is 8500. If X falls in 30% tax bracket , 8500 will be taxed at 30%.

2. X invests  100000 in Debt fund on 15 Apr 2009 and Matures on 14 Apr 2010 with value 108500.

Option 1
 a. Flat 10% on 8500 without indexation.
 b. From the above chart indexation is roughly 12% ( 711 vs 632) and the returns are actually negative ( So,no tax)

By in investing in end of March of an year for 370 days or so will entail a person for double indexation benefit!

All funds that are not classified as Equity or Equity balanced funds will be covered under the aforesaid tax treatment. That includes Fund of funds, Gold ETFs, Global Equity funds et all.

A few more links on the same topic for reference :-

Where to invest: Debt funds or fixed deposits? -

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