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FDs or Debt Funds?

For a period of 1 year, find out why a debt fund can be more tax efficient than a bank fixed deposit…

My brother is planning to go for a Rs 1 lakh fixed deposit for one year. I want to know if it will be better for him to look at a debt fund instead. Will it save taxes? He falls in the 10 per cent tax bracket. -Vijaykumar K J

Fixed deposits are secured investments when compared to debt funds. The guaranteed returns offered by fixed deposits attract investors and if your brother is looking for guaranteed returns, the fixed deposit may still be a better idea. Where debt funds score over bank fixed deposits is on the tax treatment on the proceeds on maturity and redemption. The interest earned on a fixed deposit is added on to your income, irrespective of the term of the deposit. Whereas, with debt funds the redeemed sum takes into account the short- or long-term capital gains, depending on how long you hold on to the funds. Short-term capital gains, which are investments of less than a year, are added to your income whereas with investments redeemed after a year, the long-term capital gains, can be accounted for with indexation benefits.





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