Is a fixed deposit better than a fixed maturity plan or capital protection fund subject to income tax?
- M Singhania
Investing in fixed maturity plans or capital protection funds over fixed deposit will depend on your risk profile. Unlike fixed deposits that guarantee interest for the period of the deposit; FMPs do no such thing and capital protection funds also do not guarantee capital protection. FMPs are closed-end debt funds with varying tenures and can be redeemed only at the end of the term. Though their returns are not guaranteed like fixed deposits (FDs), but returns similar to fixed deposits. Where FMPs score over fixed deposits is the way they are subjected to tax making them tax efficient. Similarly, capital protection funds are also more tax efficient than fixed deposit as they get treated as a debt mutual fund instrument. If held more than a year the investor would pay tax at 10 per cent (without indexation) and 20 per cent (with indexation); whereas fixed deposits are taxed as per the marginal tax bracket.
This article was originally published on September 20, 2011.
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