Debt Fund vs FD
Enter the amount and returns to compare debt funds vs FDs on a post-tax basis.
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How it works
The 2023 rule change ended debt funds' tax edge — now it's a straight return fight:
- Before Apr 2023: debt funds held 3+ years got 20% tax with indexation — often beating FDs easily.
- Now: gains on specified mutual funds (≤35% equity) are taxed at your slab, exactly like FD interest.
- So who wins? Whoever earns more pre-tax. An 8% debt fund vs 7.5% FD: debt fund, by the spread.
- FD advantages: guaranteed rate, DICGC insurance up to Rs 5L per bank, simple.
- Debt fund advantages: better liquidity (no premature penalty), no TDS, potentially higher returns.
- Risk note: debt funds can lose value (credit/default risk); FDs can't. Don't chase 0.5% into risk you don't understand.
Frequently asked questions
How are debt funds taxed now?
Since April 2023, gains on specified mutual funds (≤35% equity) are taxed at your income slab — the old 20%-with-indexation benefit is gone.
Debt fund or FD — which is better?
Post-tax, it's now about pre-tax returns. Compare expected debt fund returns against FD rates at your slab.
Are FDs safer than debt funds?
Yes — FDs are guaranteed and DICGC-insured to Rs 5L per bank; debt funds carry credit and interest-rate risk.
Do debt funds have TDS?
No TDS on redemption — you pay tax when filing. FDs face 10% TDS above Rs 40k interest (Rs 50k for seniors).
Can I withdraw a debt fund anytime?
Yes — no premature penalty, though exit loads may apply briefly. FDs penalize early withdrawal ~1%.
What are specified mutual funds?
Funds with ≤35% equity (most debt funds) — the category that lost indexation benefits in 2023.
Should I exit old debt fund investments?
Investments made before April 2023 keep old indexation benefits — don't churn them without reason.
What about arbitrage funds?
Treated as equity for tax (12.5% LTCG) — a different, still-advantaged category for 1+ year holds.
Which debt fund category?
Match duration to your horizon: liquid/money-market for <1 yr, short-duration for 1–3 yrs, target-maturity for defined goals.
Are debt fund returns guaranteed?
No — they fluctuate with rates and credit events. The "expected return" is an estimate, not a promise.