FD vs Debt Mutual Fund vs Arbitrage Fund Tax Calculator 2026

Compare post-tax net yield across Bank Fixed Deposits, Debt Funds, and Arbitrage Mutual Funds for high-tax-bracket investors

Investment Amount (₹)

₹

₹1.00 L₹1.00 Cr

Holding Period

Yrs

1 Yr5 Yrs

Bank FD Annual Rate (%)

4%10%

Arbitrage Fund Return Rate (%)

4%10%

Income Tax Bracket

Top Winner: Arbitrage Fund ⭐

₹60.25 L

Effective post-tax yield: 6.41% p.a. (vs Bank FD: 5.31% p.a.)

Bank FD Net Tax Paid₹3.80 L

Arbitrage Fund Net Tax Paid₹1.35 L

3-Way Net Payout Comparison

1. Arbitrage Mutual Fund (Equity Tax) ⭐₹60.25 L (6.41%)

2. Debt Mutual Fund (Tax Deferred)₹58.34 L (5.27%)

3. Bank Fixed Deposit (Quarterly Taxed)₹58.39 L (5.31%)

Side-by-Side Product Comparison Table

Comparison Metric	Arbitrage Mutual Fund	Debt Mutual Fund	Bank Fixed Deposit
Initial Investment Amount	₹50.00 L	₹50.00 L	₹50.00 L
Expected Return Rate	7.2% p.a.	7.5% p.a.	7.5% p.a.
Pre-Tax Gross Maturity Value	₹61.60 L	₹62.11 L	₹62.49 L
Applicable Tax Law	Equity Fund Tax (Sec 112A / 111A)	Slab Rate upon Redemption	Slab Rate Annual Withdrawal
Tax Rate Applied	12.5% LTCG (>₹1.25L exempt)	30% + 4% Cess	30% + 4% Cess
Total Tax Deducted	₹1.35 L	₹3.78 L	₹3.80 L
Net Post-Tax Maturity Value	₹60.25 L	₹58.34 L	₹58.39 L
Effective Annual Post-Tax Yield	6.41% p.a.	5.27% p.a.	5.31% p.a.

Visual Comparison: Net Payout vs Total Tax Deducted

Fixed Income Analytics

The Fixed Income Dilemma: Bank Deposit Certainty vs Debt Fund Tax Deferral

Following amendments to Section 50AA, capital gains from pure debt mutual funds (with equity exposure under 35%) are taxed at personal income slab rates, removing indexation. However, debt funds retain a powerful advantage over FDs: Tax Deferral. In an FD, tax is due every year on accrued interest; in a debt fund, tax is payable only upon eventual redemption.

Financial Engineering

FD vs Debt Mutual Funds FAQs

Key considerations for fixed-income asset allocation.

Why do debt mutual funds still offer tax efficiency over fixed deposits?

In a bank FD, interest is taxed annually on an accrual basis, triggering yearly TDS. In debt funds, your entire corpus compounds gross of tax for 5 to 10 years; zero tax is payable until you actually redeem units.

Why Arbitrage Funds Beat Bank FDs for 30% Tax Bracket Investors

Following the Finance Act 2023 amendment, Debt Mutual Funds are taxed at full income tax slab rates upon redemption (losing indexation benefit). Bank FD interest is also taxed at your full slab rate every year.

However, Arbitrage Mutual Funds maintain >65% average exposure to equity shares hedged with futures contracts. As a result, they qualify for Equity Taxation:

LTCG (>1 Year): 12.5% tax rate on gains above ₹1,25,000 threshold (vs 30% + cess for FDs).
STCG (≤1 Year): Flat 20% tax rate (vs 30% + cess for FDs).
Tax Deferral Advantage: Mutual funds do not pay annual tax; returns compound tax-deferred until redemption. In contrast, Bank FDs pay slab tax every year, reducing compounding velocity.