I have received many requests to give a working of how Bond Funds beat fixed deposits post tax. When you invest in an FD, you pay tax at your tax slab which could be 30%. However investors in bond funds get the benefit of indexing the cost and a reduced rate of 20% tax which significantly reduces tax burden.
Assumptions in the sample below:
1. Investment has to be for 3 years for indexation benefits for bond fund
2. Cost inflation index growth at 5% which is very reasonable considering the rate of inflation
3. 7.25% returns for both
Even with the same returns, the net gain at the end of 3 years is substantial if one had invested in bond funds
Mutual Fund investments are subject to market risk. Please read all scheme related documents carefully.
Connect with me at maheshmirpuri@yahoo.com to learn more about mutual funds.
