Fixed Deposit vs Debt Mutual Funds: Which Gives Better Post-Tax Returns Now?

The indexation and lower LTCG rate are gone for units bought after 1 April 2023. What remains is tax deferral — you control when the gain is taxed, versus an FD's yearly forced taxation — plus, for most resident individuals, no TDS on redemption.

No, not universally. FDs are bank-guaranteed and DICGC-insured up to ₹5 lakh. Debt funds carry credit and interest-rate risk that varies a great deal by category — overnight and liquid funds are close to FD-like safety; credit-risk and long-duration funds are not.

Units bought before 1 April 2023 are outside the slab-rate rule, but indexation is gone for them too: if sold after 23 July 2024 and held for more than 24 months, gains are taxed at 12.5% without indexation; if held for 24 months or less, at your slab rate. Confirm the treatment for your exact purchase dates with a tax professional.

Liquid or overnight funds are usually preferred over FDs for the "ready cash" layer of an emergency fund because there's no premature-withdrawal penalty — see our Emergency Fund guide for the full structure.

Banks deduct TDS on FD interest only when the interest paid by that bank in a financial year crosses ₹50,000, or ₹1 lakh for senior citizens. These limits apply from 1 April 2025. If your total income is below the taxable limit, you can submit Form 15G (or 15H if you are a senior citizen) to avoid the deduction.

Yes, for units bought on or after 1 April 2023. Gains on these units are treated as short-term and taxed at your slab rate however long you hold them, so holding beyond 3 years no longer brings indexation or a lower rate. The only remaining edge over an FD is that tax is paid when you redeem.