Debt MF vs Bank FD (Redeeming Interest every year)
New Tax Structure
Since Debt Funds are only taxed on redemption (on the capital gains portion of redeemed units), while bank fixed deposits are taxed every year on the full interest, the difference in taxes between Debt MF and Bank FD remains substantial even under the new tax regime. The example below shows the difference when you redeem from the Debt MF each year an amount equivalent to the bank FD interest.
Annual Taxes Paid
Post-Tax Income
Annual Cash Flows (Debt MF & comparison)
| Year | Investment (₹) | Start # units | Start NAV | End NAV | Redemption (₹) | Units redeemed | End # units | End Value (₹) | CG per unit | Debt MF Tax | Bank FD Tax | Debt MF Post-tax | Bank FD Post-tax | % higher |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 1 | 1,00,00,000 | 1,00,000 | 100.00 | 107.50 | 7,50,000 | 6,977 | 93,023 | 1,00,00,000 | 8 | 20,407 | 2,92,500 | 7,29,593 | 4,57,500 | 59% |
| 2 | 1,00,00,000 | 93,023 | 107.50 | 115.56 | 7,50,000 | 6,490 | 86,533 | 1,00,00,000 | 16 | 39,390 | 2,92,500 | 7,10,610 | 4,57,500 | 55% |
| 3 | 1,00,00,000 | 86,533 | 115.56 | 124.23 | 7,50,000 | 6,037 | 80,496 | 1,00,00,000 | 24 | 57,049 | 2,92,500 | 6,92,951 | 4,57,500 | 51% |
| 4 | 1,00,00,000 | 80,496 | 124.23 | 133.55 | 7,50,000 | 5,616 | 74,880 | 1,00,00,000 | 34 | 73,476 | 2,92,500 | 6,76,524 | 4,57,500 | 48% |
| 5 | 1,00,00,000 | 74,880 | 133.55 | 143.56 | 7,50,000 | 5,224 | 69,656 | 1,00,00,000 | 44 | 88,757 | 2,92,500 | 6,61,243 | 4,57,500 | 45% |
| 6 | 1,00,00,000 | 69,656 | 143.56 | 154.33 | 7,50,000 | 4,860 | 64,796 | 1,00,00,000 | 54 | 1,02,971 | 2,92,500 | 6,47,029 | 4,57,500 | 41% |
| 7 | 1,00,00,000 | 64,796 | 154.33 | 165.90 | 7,50,000 | 4,521 | 60,275 | 1,00,00,000 | 66 | 1,16,194 | 2,92,500 | 6,33,806 | 4,57,500 | 39% |
| 8 | 1,00,00,000 | 60,275 | 165.90 | 178.35 | 7,50,000 | 4,205 | 56,070 | 1,00,00,000 | 78 | 1,28,495 | 2,92,500 | 6,21,505 | 4,57,500 | 36% |
| 9 | 1,00,00,000 | 56,070 | 178.35 | 191.72 | 7,50,000 | 3,912 | 52,158 | 1,00,00,000 | 92 | 1,39,937 | 2,92,500 | 6,10,063 | 4,57,500 | 33% |
| 10 | 1,00,00,000 | 52,158 | 191.72 | 206.10 | 7,50,000 | 3,639 | 48,519 | 1,00,00,000 | 106 | 1,50,581 | 2,92,500 | 5,99,419 | 4,57,500 | 31% |
Each year you redeem from the Debt MF an amount equal to the Bank FD interest. Tax on Debt MF is only on the capital gains of the redeemed units (at your slab). Bank FD interest is fully taxed every year. Ending value is kept at investment amount by design (growth minus redemption).
About this calculator
Debt MF vs Bank FD • Debt
Even when debt mutual funds are taxed at the slab rate, they can still be more tax efficient than bank fixed deposits because taxation happens only on redemption — and only on the capital gains portion of the redeemed units.
This calculator compares annual tax paid and post-tax income when you redeem from a debt MF each year an amount equal to the FD interest.
How to use
- Enter investment amount, interest rate, and your tax slab rate.
- Review the tax and post-tax income charts year-by-year.
- Use the table to see units redeemed, capital gain per unit, and the tax difference vs FD.
Key assumptions
- Assumes the debt MF grows at the same rate as the FD interest rate for a like-for-like illustration.
- Uses a simplified cost base (initial NAV) to compute capital gains per redeemed unit.
FAQs
Why is Debt MF tax lower even if the slab rate is the same?
Because in a Debt MF you pay tax only on the capital gains portion of redeemed units. In an FD, the full interest amount is taxable each year.
Why does the tax increase over time for Debt MF in the table?
As NAV rises, the capital gain per unit increases. When you redeem units, a larger portion of the redemption becomes capital gains, increasing tax gradually.
