Why Shouldn’t I Invest in a Fixed Deposit?

Sachin Karpe Explains

Why shouldn't I invest in a Fixed Deposit? is the most

common question asked by the investors. Will you invest in

a FD of 10k, if the net return will be 6.3% instead of an

overall return of

9%?

Sachin Karpe

explains how the

fixed deposit

calculated. If you

have a fixed deposit

of Rs. 10,000 with

9% interest rate, pre-tax interest earned during the year

would be Rs. 900. Tax on the interest earned at 30% tax rate

would be Rs. 270 and net amount earned by the investor

would be Rs. 630. This translates into a net return of 6.3%

which is much lower than the presumed return.

Sachin Karpe also advices to invest in long term fixed

income i.e., debt mutual funds. Long-term capital gains on

investments in debt mutual funds are taxed either at 10 per

cent flat rate on 20 per cent indexed. Average return of

short-term debt funds in the last 3 years is 8.9 per cent. If an

individual decides to invest Rs. 10,000 in a short-term debt

mutual fund, pre-tax returns earned for one year would be

Rs. 890. At a flat 10 per cent tax, Rs. 89 would the tax

amount. Net capital gain would be Rs. 801, whereas post-

tax interest earned would be 8.01 per cent which is more

than the interest rate of fixed deposit.

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