Tax planning guides Tax deferral
Pay Tax Only When You Redeem: The Deferral Advantage
FD interest is taxed every year, so only the after-tax amount compounds. Mutual fund growth is taxed only when you redeem, so the full amount keeps working for you.
A fair test
To isolate the effect of timing, we give an FD and a debt fund the same 7% return and tax both at the 30% slab plus cess. The only difference: the FD is taxed every year, the fund once at redemption.
| ₹10 lakh invested | FD (taxed yearly) | Debt fund (taxed at redemption) |
|---|---|---|
| After 10 years | ₹16.01 lakh | ₹16.65 lakh |
| After 20 years | ₹25.62 lakh | ₹29.74 lakh |
Illustration using assumed returns. Equity funds add a lower 12.5% rate and the ₹1.25 lakh yearly exemption on top of this deferral benefit.
Where deferral helps most
- Choose growth, not IDCW: IDCW payouts are taxed every year at your slab rate.
- Redeem in a low-income year: for example after retirement, when your slab may be lower.
- Long-term goals: retirement and children's education, where money stays invested for 10–20 years.
Please note: This guide is investor education, not tax or investment advice. Figures are illustrations using assumed returns and are not guaranteed. Tax rules shown apply for FY 2026-27 (tax rules as of September 2026) and can change; please confirm your own situation with a chartered accountant. Mutual fund investments are subject to market risks. Read all scheme-related documents carefully.
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