The tax rate is the same. The compounding isn't

Summary: Debt funds and FDs are taxed at the same slab rate since 2023, but an FD is taxed annually while a debt fund is taxed only on redemption, so more money keeps compounding along the way. This piece runs the maths on Rs 10 lakh over 10 and 20 years to show the gap, and flags where an FD still wins.

Summary: Debt funds and FDs are taxed at the same slab rate since 2023, but an FD is taxed annually while a debt fund is taxed only on redemption, so more money keeps compounding along the way. This piece runs the maths on Rs 10 lakh over 10 and 20 years to show the gap, and flags where an FD still wins. The question came from a subscriber at last month’s Fund Advisor Live: Are debt funds now taxed like fixed deposits (FDs)? The answer is yes. From April 2023, the gain on a debt fund is added to your income and taxed at your slab, no matter how long you hold it for. The old concession, indexation and a 20 per cent rate after three years are gone. The subscriber had drawn the natural conclusion. Since the rate is the same, the FD wins. It is simpler, and the return is guaranteed. For most long-term debt money, that conclusion is wrong. The rate is the same. The