TAX DRAG & YIELD ARBITRAGE
+₹4,951
Net post-tax advantage of holding a Debt Mutual Fund over a Bank Fixed Deposit for 3 years.
Investment & Tax Bracket
₹5,00,000
3 Years
Includes 4% Health & Education cess (31.2% effective rate).
7.1% p.a.
7.5% p.a.
BANK FIXED DEPOSIT
₹5,78,399
Pre-Tax Interest:₹1.18 L
TDS / Slab Tax:-₹39,138
Net Post-Tax CAGR:4.98%
DEBT MUTUAL FUND
₹5,83,350
Pre-Tax Gains:₹1.21 L
Tax at Exit:-₹37,798
Net Post-Tax CAGR:5.27%
Post-Tax Net Wealth vs Tax Drag
Comparing net payout and cumulative tax deducted across instruments
The Tax Compounding Secret
Debt mutual funds delay tax until redemption, allowing uninterrupted gross compounding vs bank FDs which suffer annual TDS deduction. While bank FDs deduct TDS every single financial year (destroying compounding velocity), mutual funds only trigger taxation upon actual redemption. For investors in the 30% slab, Arbitrage funds offer an enormous tax shelter with only 12.5% LTCG above ₹1.25 Lakh.
SHAREABLE RESULT
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Net Post-Tax Advantage
+₹4,951
Bank FD Net Yield
4.98%
After 30% tax bracketDebt/Arbitrage Yield
5.27%
Slab tax at redemptionTotal Principal
₹5.00 L
Over 3 Years