What will you choose for investment (for tax benefit) - Mutual Fund or Fixed Deposit in Bank?

Question

If you have to invest Rs 50,000 for TAX BENEFIT , what would you choose ? Why?
( you can also show a link where comparison betn the two is drawn up)

Answer 1

With a mutual fund you pay tax on the interest at normal rates as you do in a bank deposit. When it is time to sell the increase in value, not counting interest, is taxed at capital gains rates on a mutual fund. All gain in a bank deposit is regular income (interest). You have to compare the rates to see which is best.

Answer 2

First of all if you are ready to take some calculated risk then I'll suggest you to invest in mutual fund, the whole reason behind this is the lock in period of investment.

If you are making a tax saving investment in mutual fund then the lock in period ( the minimum amount of time when your money has to be invested, it cannot be withdrawn before that) would be 3 years, where as in a tax saving fixed deposit the same is 5 years.

Also if you compare the returns available, a mutual fund will always give you a better return.

There will be market risk associated with a mutual fund but it will not be in the case of fixed deposit.

So if you are ready to take some risk you can have more money in comparatively less time.

Answer 3

Mutual funds are the best option now as our economy is growing well. Still the better option is a unit linked insurance plan as most of the companies are doing well. Giving more than 40% return in a year. The return from MF investment is taxable while the return from the ULIP is non taxable as there is an insurance component is incorporated in it. Further they are managed by companies having a very good capital base and controlled by the Regulator. In addition you can switch between various fund options free of cost and change your level of risk to minimum or high . Now a days some companies are giving capital guarantee as well as a guaranteed return too. If you need I will provide a chart of growth related to various plans of different companies to your mail This is because I am here not for a particular company

Answer 4

i feel that for this year u should invest in fixed deposit. i will state the reasons below:
1) the equity or share market is at its high and a fall is anytime expected. mutual funds normally invest a portion in euity market which is not suggested these days.
2) the return of mutual fund may be 20%-25% but one is not sure of that during this boom but fixed deposit returns are 8%+ guaranteed.
3) the purpose is tax benefit then y not opt for a safer option. if u have excess money to invest then u can opt for mutual fund.

Answer 5

A shift to large-caps... Picking up value stocks... Loading up on `defensives'. Those were some of the strategies diversified equity mutual funds adopted to cope with the volatile market in 2006. Unfortunately, none of them worked. The year gone by proved one of the toughest in recent times for mutual funds as they struggled to keep pace with the capricious markets.

But despite the volatility, the equity market ended 2006 on a high note, with the Sensex and Nifty returning 47 per cent and 40 per cent respectively. But mutual fund investors have some reason to be disappointed. The average return of diversified equity funds over the period was 33 per cent.

Lagging The Market

Diversified equity funds hugely under-performed the market last year, a rare occurrence in the Indian context, especially in a rising market. Just 25 equity funds of the sample of 145 diversified funds — less than a fifth — outpaced the Sensex. The funds fared relatively better against the Nifty, with 46 of them delivering a return of more than 40 per cent. A disappointing performance, nonetheless.

This was an unusual year when diversified funds under-performed both during the rally as well as in the corrective phases. Only 12 funds managed to contain declines to less than 30 per cent during the free fall in May-June. Earlier corrections saw a greater proportion of diversified funds contain declines to a level less than the market. Interestingly, even in the unrelenting rally preceding the correction (January-May 10), less than half of the funds in the diversified category beat the benchmark indices.

Sensex, A Tough Benchmark

But the Sensex was a particularly tough benchmark to beat in 2006. The rally was so narrow that 19 stocks in the Sensex basket delivered returns below the average 47 per cent. That means a portfolio with concentrated exposures in Reliance, Infosys and ICICI Bank would have fared better than one that held the entire basket.

Barring the BSE Capital Goods Index, which recorded a 56 per cent return, the Sensex was the top performer across BSE indices, including the BSE Bankex and BSE IT. Not surprisingly, most funds that emerged at the top of the performance charts had concentrated holdings in engineering and infrastructure. Given the shallowness of the rally, funds should have abandoned all attempts at diversifying in order to beat the index and, should instead, have focussed on just a couple of sectors and a few stocks. Few did so, however, and in the end, it was the aggressively managed funds that trounced the indices.

Answer 6

The Hindu Business Line : A guide to fixed income investingOne has to choose between bank fixed deposits, post-office term deposits, ... Moreover, an investment up to Rs 10000 is eligible for tax benefits. ...
www.thehindubusinessline.com

Answer 7

It depends on which one has the lower tax rate. In my country the FD interest is only taxable for above 100K investment. If I were you, I will invest in both (Mutual Fund and FD), 7:3 ratio perhaps as I'm a moderate risk investor regardless of the tax benefit.

Answer 8

For tax benefit the best investment is only Mutual funds i.e. the tax saving mutual funds(elss), particularly I would like to recomend SBI & HDFC Tax savings mutual funds. Remember that investment in tax saving mutual funds upto Rs.1,00,000 can be shown for tax concession, so go for Mutual funds.

Answer 9

This is the best online website that can help you to invest into indian mutual funds online and will tell you about the related tax issues when it comes to indian mutual fund investments.

http://www.nriinvestindia.com/nri_tax_on_investments.htm

They will help you to invest into indian mutual funds online.
They can advise you to do investments in the best and the top performing mutual funds of india.

They also help NRIs to invest in then Indian mutual funds and india stock markets online.

http://indianmutualfunds.nriinvestindia.com/

Answer 10

At this point of time HDFC Diversified Equity Fund is best to invest as the equities will still appreciate at the long term annualized rate of 18%. FD will give you at best 9%. Both of them are not backed by RBI and carry similar risk in long term esp in India. Though in short term. FDs are more secure.