Mutual Fund: Mutual Fund or FD, in which of these you will get excellent returns, understand which one to invest in – are mutual funds dead against fixed deposits
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You will get this much return
You deposited Rs 1 lakh each in FD and debt funds. Let’s assume that both places got 7.5% return, which made a profit of Rs 24,230. If you are in the 30% income tax bracket, then you will have to pay Rs 7,269 as tax on FD. That is, the actual return on FD remained 5.36%. In the case of debt funds, first the cost of inflation will also be added to the investment amount. For this, the support of cost inflation index is taken. As a result, the investment will be considered more than one lakh. Due to this, tax will be calculated on less profit. The tax on that will also be 20 per cent only. Thus, the actual return on debt funds can be close to 7%.
more advantages
Your tax is deferred till the time you withdraw money from debt mutual funds, irrespective of the number of years. However, even if you do not withdraw money in FD, the return has to be taxed on an annual basis. If earning more than 40 thousand rupees in a year from FD, then banks deduct 10% TDS. If your tax is not generated, then you have to fill Form 15G or 15H every year. These things do not bother in debt funds.
now it will be difficult
The biggest attraction of debt funds is about to end. In debt funds where the equity component is 35% or less, the benefit of lower tax will be lost. There, the benefit of 20% tax on long-term capital gains and indexation to inflation will not be available. Simply put, such debt funds will have to be taxed like FDs. Its provision has been made in the Finance Bill and it has also been passed by the Lok Sabha. Similar benefits are being done away with in gold funds as well.
applicable since
The proposals of the Finance Bill will come into effect from April 1. However, the new proposal will not be applicable to all the old investments in debt funds. Debt funds with investment horizon of less than three years were earlier also taxed at the same level as FDs. It will still be the same. For example, money can be put in and taken out faster in liquid funds. Like bank savings accounts, they will continue to be useful as liquid funds can offer much higher returns than savings accounts.
If the equity in debt funds is between 35 and 65 per cent, investments in them for more than three years will still get the benefit of 20 per cent tax and inflation. Investment in these will continue.
compete with FD
The returns in FD are fixed. There is also insurance of five lakh rupees deposited in the bank. In contrast, the returns in debt funds depend on the market conditions. According to the latest data, some debt funds have given returns of around 7% in the last five years. Due to saving more tax, people also preferred to deposit money here. After the new changes, it is estimated that a major chunk of debt funds may shift towards FDs.
long term effect
Sandeep Bagla, CEO of Trust Mutual Fund, believes that there will be an impact in the long term. Money has come out of debt schemes in the last one or two years. Money came only in target maturity funds, in which money is deposited in government securities, which try to give FD-like returns and have tax benefits. Their investors will not want to withdraw their investment even after three years. As long as the money is not withdrawn, the tax will continue to be saved. Now the money will flow into those funds only, which generate inflation-beating returns for the investors.
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