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Answer transcript: They may be a little better than debt funds. Looking at a debt fund over a three year holding period, your tax liability will be the appreciation less indexed capital gains so your effective tax rate on the gains will be less than 10% after indexation. Considering debt fund returns of about 8% and 10% taxation, you might be better off quantitatively with debt funds. But you don't get guaranteed returns in a mutual fund. So in terms of simplicity and guarantee, the differential will not be very much. With somewhere between 7-7.5% in a mutual fund compared to 6-6.5% in a tax free deposit you have to see if the premium is worthwhile.
This article was originally published on March 14, 2017.
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