FD vs Mutual Fund

Post-tax growth · risk horizon check
₹2,00,000
10 years
Comparing…
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FD final value
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MF final value
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MF beats FD by
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MF / FD multiple

Risk vs reward

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How to read the result

  • FD: fixed annual interest, taxed every year at your slab. Capital is safe but inflation eats real return.
  • Mutual Fund: market-linked, riskier in short windows. Long horizons (7+ yrs) historically smooth volatility and beat FD comfortably.
  • For horizons under 3 years, prefer FD/liquid funds — risk beats the extra return.
STCG vs LTCG: equity MF held > 1 yr → LTCG tax 12.5% above ₹1.25 L (FY25-26). FD interest is fully taxable every year — both regimes apply.

The three differences that decide it: risk, liquidity, tax

Risk: bank FDs up to ₹5 lakh per bank are DICGC-insured and their interest is contractual — the return is known on day one. Equity mutual funds carry market risk: a 12% long-run average can hide a −15% year, which is why equity needs a 5–7+ year horizon. Debt funds sit between, with credit and interest-rate risk.

Liquidity: FDs can be broken early (usually with a 0.5–1% interest penalty); 5-year tax-saver FDs cannot. Open-ended mutual funds redeem in 1–3 working days at that day's NAV — no exit load after the load period (typically 1 year for equity funds). Neither should hold your emergency money unless it's a liquid fund.

Tax: FD interest is added to income and taxed at slab every year — a 30% taxpayer earning 7% keeps under 5% post-tax. Equity MF gains are taxed only on redemption (12.5% LTCG beyond the ₹1.25L/year exemption for 12-month-plus holdings), so the deferral itself compounds. Post-April 2023, debt-fund gains are also taxed at slab, which narrowed their edge over FDs.

Worked example: ₹10 lakh for 10 years

₹10 lakh in a 7% FD grows to about ₹19.67 lakh — but yearly slab tax on interest trims a 30% taxpayer to roughly ₹17.4 lakh. The same ₹10 lakh in an equity fund at an assumed 12% compounds to ₹31.06 lakh; LTCG of 12.5% on gains above the ₹1.25L exemption leaves about ₹28.8 lakh. That ₹11+ lakh gap is the price of volatility — which only makes sense if the money genuinely has 10 years. Try your own amounts and tenures above, and read simple vs compound interest for the underlying maths.

How this calculator works

The tool compounds both instruments at your chosen FD and MF rates side by side, applying the current tax treatment to each (FD interest at slab yearly; equity MF LTCG at redemption). All maths runs in your browser. Content reviewed and updated for 2026.

Frequently asked questions

FD vs SIP vs mutual fund — which is better?

For goals under 3 years, FDs win (capital protection, known return). For 7+ year goals, equity mutual funds have historically out-returned FDs after tax — SIPs just automate monthly investing into them. The calculator above compares FD vs mutual fund growth with tax.

Is my FD money guaranteed?

Yes — bank deposits up to ₹5 lakh per depositor per bank are insured by DICGC. Cooperative banks and NBFC FDs carry higher default risk; check credit ratings before locking large sums.

Are mutual fund returns fixed?

No. Equity MF returns fluctuate yearly — a 12% long-run average can include -10% and +30% individual years. Debt MFs are lower-volatility but returns are not guaranteed either.

Which saves more tax — FD or mutual fund?

Tax-saver 5-year FDs and ELSS both get 80C deduction, but FD interest is then taxed yearly at slab while ELSS gains are taxed once at 12.5% LTCG on redemption. For a 30% slab investor, equity fund taxation is materially lighter.

What about debt mutual funds from April 2023?

Debt MF capital gains bought after 1-Apr-2023 are now taxed at your slab (no LTCG benefit). This makes equity MF + PPF relatively more attractive for the debt portion of your portfolio.

How much should I keep in each?

Rule of thumb: 3–6 months expenses in FD/liquid fund (emergency), rest split by horizon — money needed <3yr (FD/debt), 3-7yr (balanced), 7+yr (equity MF) for higher expected returns.