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Debt Mutual Funds vs. Fixed Deposits · Debt Mutual Funds vs. Fixed Deposits (Contd.) # Assumed as...

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Debt Mutual Funds vs. Fixed Deposits An Investor Education and Awareness Initiative by Franklin Templeton Mutual Fund
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Page 1: Debt Mutual Funds vs. Fixed Deposits · Debt Mutual Funds vs. Fixed Deposits (Contd.) # Assumed as 36 months, @ Cost of acquisition will be increased by applying Cost Inflation Index

Debt Mutual Funds vs. Fixed Deposits

An Investor Education and Awareness Initiative

by Franklin Templeton Mutual Fund

Page 2: Debt Mutual Funds vs. Fixed Deposits · Debt Mutual Funds vs. Fixed Deposits (Contd.) # Assumed as 36 months, @ Cost of acquisition will be increased by applying Cost Inflation Index

• A Traditional Financial Instrument offered by Banks

• Fixed Deposits Provide Rate of Interest Higher than Regular Savings Account

• Offer Fixed Rate of Interest for a pre-specified Tenure

• Fixed Deposits come with a pre-defined Maturity Period

• Banks may Charge a Penalty for Premature Withdrawal

• Fixed Deposits are considered to be Safe Investments

• Banks also offer Recurring Deposits and Flexi Fixed Deposits

Fixed Deposits

Page 3: Debt Mutual Funds vs. Fixed Deposits · Debt Mutual Funds vs. Fixed Deposits (Contd.) # Assumed as 36 months, @ Cost of acquisition will be increased by applying Cost Inflation Index

Debt Mutual Funds vs. Fixed Deposits

Parameters Debt Mutual Funds Fixed Deposits@

Rate of Returns No Assured Returns Fixed Returns

Inflation Adjusted Returns Potential for Higher Inflation-adjusted

Returns Usually Low Inflation-adjusted Returns

Risk Medium to High Risk Low Risk

Liquidity Liquid Medium to Low Liquidity

Premature Withdrawal Allowed with Exit Load^ (if applicable) Allowed with Penalty

Cost of Investment Based on Total Expense Ratio (TER) No Cost

Tax Status # Tax efficiency due to indexation

benefits available if the holding period

is more than 36 months

Interest is taxed as per individual slab rates.

Tax benefits available if holding period is

more than 5 years (under section 80C).

# Taxation details are as per existing tax laws. The nature of tax will depend based on the individuals tax status and nature of investments besides

holding period. Please consult a professional financial advisor or tax consultant for details.

^ Exit load period varies from fund to fund. There is no exit load If the holding period exceeds this pre-defined period.

@ Bank deposits / Recurring Deposits are insured to the extent of only Rs 1 lakh by Deposit Insurance and Credit Guarantee Corporation (DICGC)

Page 4: Debt Mutual Funds vs. Fixed Deposits · Debt Mutual Funds vs. Fixed Deposits (Contd.) # Assumed as 36 months, @ Cost of acquisition will be increased by applying Cost Inflation Index

Debt Mutual Funds vs. Fixed Deposits (Contd.)

# Assumed as 36 months, @ Cost of acquisition will be increased by applying Cost Inflation Index (CCI) of the year of redemption for the

purpose of computing taxable income. CCI is provided by the Income Tax Department, *Indexation benefits available only if holding period is

more than 36 months, ** 100,000*1.075^3=124,230, ^ Tax rate assumed at 30% (excluding surcharge & cess), $ 20% with indexation

(excluding surcharge & cess)

Table is for illustration purposes only. Taxation details are provided on a best effort basis and subject to change from time to time. The

recipient is advised to consult its advisor/ tax consultant prior to arriving at any investment decision.

(Source: PersonalFN Research)

Illustration Fixed Deposits Debt Mutual Fund

Investment Amount (A) 100,000 100,000

Assumed Return (% p.a.) 9.0% 9.0%

Holding Period # 3 Years 3 Years

Fund Value (B) 129,503 129,503

Assumed Inflation (% p.a.)@ 7.5% 7.5%

Indexed Investment Amount (C)* - 124,230**

Taxable Income (B-A) 29,503 (C-B) 5,273

Tax Paid (as applicable) 8,851^ 1,055$

Post Tax Returns 20,652 28,488

Annualised Post Tax Returns (%) 6.46% 8.70%

Page 5: Debt Mutual Funds vs. Fixed Deposits · Debt Mutual Funds vs. Fixed Deposits (Contd.) # Assumed as 36 months, @ Cost of acquisition will be increased by applying Cost Inflation Index

Points to Remember…

• Fixed Deposits are traditional investment instruments that provide a

higher and assured Rate of Interest than a Regular Savings Account

• Fixed Deposits are covered by the Deposit Insurance and Credit

Guarantee Corporation, which guarantees an amount of up to

Rs 1,00,000 per depositor per bank

• The Rate of Interest on fixed deposits is fixed for a pre-specified

Tenure

• Compared to bank fixed deposits, debt mutual funds have the

potential to offer higher inflation-adjusted returns

• Fixed deposits are suitable for investors with low risk appetite

Page 6: Debt Mutual Funds vs. Fixed Deposits · Debt Mutual Funds vs. Fixed Deposits (Contd.) # Assumed as 36 months, @ Cost of acquisition will be increased by applying Cost Inflation Index

Points to Remember…

• Various types of Mutual funds are available for investors across risk

appetite but there is no assurance on returns like fixed deposits

• Premature Withdrawal of fixed deposit may be allowed with a penalty

• Early redemption from mutual funds may be subject to exit load if

applicable

• Debt Mutual Funds offer tax efficiencies if the holding period is more

than 36 months as per current tax laws.

• Consider your risk appetite, investment time horizon and your return

expectation while choosing between fixed deposits and / or debt

mutual funds

Page 7: Debt Mutual Funds vs. Fixed Deposits · Debt Mutual Funds vs. Fixed Deposits (Contd.) # Assumed as 36 months, @ Cost of acquisition will be increased by applying Cost Inflation Index

We now invite you to test your learning by taking up this simple quiz

Lets Do A Short Quiz!

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Page 8: Debt Mutual Funds vs. Fixed Deposits · Debt Mutual Funds vs. Fixed Deposits (Contd.) # Assumed as 36 months, @ Cost of acquisition will be increased by applying Cost Inflation Index

1) Mutual Funds are a safe investment instrument.

A. True

B. False

2) _____________ offer fixed rate of interest for a pre-specified tenure.

A. Mutual Funds B. Stocks

C. Fixed Deposits D. Gold ETFs

3) Your investments would be worthy only if they are able to offer you a decent

A. Cost B. Risk

C. Insurance Cover D. Inflation-adjusted Returns

Quick Quiz

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Page 9: Debt Mutual Funds vs. Fixed Deposits · Debt Mutual Funds vs. Fixed Deposits (Contd.) # Assumed as 36 months, @ Cost of acquisition will be increased by applying Cost Inflation Index

4) Mutual funds may charge you ______________ for early withdrawal.

A. Entry Load B. Exit Load

C. Expense Ratio D. None of the above

5) You can claim indexation benefit on long term capital gains from your

investment in ___________

A. Debt Mutual Funds B. Equity Mutual Funds

C. Fixed Deposits D. Stocks

Quick Quiz

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Page 10: Debt Mutual Funds vs. Fixed Deposits · Debt Mutual Funds vs. Fixed Deposits (Contd.) # Assumed as 36 months, @ Cost of acquisition will be increased by applying Cost Inflation Index

Thank You For Participating!

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Page 11: Debt Mutual Funds vs. Fixed Deposits · Debt Mutual Funds vs. Fixed Deposits (Contd.) # Assumed as 36 months, @ Cost of acquisition will be increased by applying Cost Inflation Index

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Mutual Fund investments are subject to market risks, read all scheme related documents carefully.

Information contained in this presentation is not a complete representation of every material fact and is for informational purposes only. Regulatory/ taxation details mentioned in the presentation are provided on a best effort basis and are as per the existing laws and subject to change from time to time. The recipient is advised to consult his/her advisor/ tax consultant prior to arriving at any investment decision.

Disclaimer

Page 12: Debt Mutual Funds vs. Fixed Deposits · Debt Mutual Funds vs. Fixed Deposits (Contd.) # Assumed as 36 months, @ Cost of acquisition will be increased by applying Cost Inflation Index

Franklin Templeton Asset Management (India) Pvt. Ltd.

Indiabulls Finance Centre, Tower 2,

12th and 13th floor, Senapati Bapat Marg,

Elphinstone (W)

Mumbai 400013

Tel (91-22) 6751 9100

Fax (91-22) 6639 1281

www.franklintempletonindia.com


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