FD vs Debt Mutual Fund vs Arbitrage Fund Tax Calculator 2026

Compare post-tax net yield across Bank Fixed Deposits, Debt Funds, and Arbitrage Mutual Funds for high-tax-bracket investors

Investment Amount

₹

₹1.00 L₹1.00 Cr

Holding Period

Yrs

1 Yr5 Yrs

Bank FD Annual Rate (%)

4%10%

Expected Debt Mutual Fund Return (%)

4%10%

Arbitrage Fund Return Rate (%)

4%10%

Other taxable income (yearly)

₹

₹0₹5.00 Cr

Tax regime

Top Winner: Arbitrage Mutual Fund: ₹60.25 L; Effective post-tax yield: 6.41% p.a. (vs Bank FD: 6.21% p.a.)

Bank FD Net Tax Paid: ₹2.40 L
Arbitrage Fund Net Tax Paid: ₹1.34 L

3-Way Net Payout Comparison

1. Arbitrage Mutual Fund (Equity Tax): ₹60.25 L (6.41%)
2. Debt Mutual Fund (Tax Deferred): ₹59.12 L (5.74%)
3. Bank Fixed Deposit (Quarterly Taxed): ₹59.90 L (6.21%)

Side-by-Side Product Comparison Table

Show as

Initial Investment Amount
Arbitrage Mutual Fund
₹50.00 L
Debt Mutual Fund
₹50.00 L
Bank Fixed Deposit
₹50.00 L
Expected Return Rate
Arbitrage Mutual Fund
7.2% p.a.
Debt Mutual Fund
7.5% p.a.
Bank Fixed Deposit
7.5% p.a.
Pre-Tax Gross Maturity Value
Arbitrage Mutual Fund
₹61.60 L
Debt Mutual Fund
₹62.11 L
Bank Fixed Deposit
₹62.49 L
Applicable Tax Law
Arbitrage Mutual Fund
Equity Fund Tax (Sec 112A / 111A)
Debt Mutual Fund
Slab Rate upon Redemption
Bank Fixed Deposit
Slab Rate Annual Withdrawal
Tax Rate Applied
Arbitrage Mutual Fund
12.5% LTCG (>₹1.25L exempt)
Debt Mutual Fund
Slab rate on top of your other income + 4% cess
Bank Fixed Deposit
Slab rate on top of your other income + 4% cess
Total Tax Deducted
Arbitrage Mutual Fund
₹1.34 L
Debt Mutual Fund
₹3.00 L
Bank Fixed Deposit
₹2.40 L
Net Post-Tax Maturity Value
Arbitrage Mutual Fund
₹60.25 L
Debt Mutual Fund
₹59.12 L
Bank Fixed Deposit
₹59.90 L
Effective Annual Post-Tax Yield
Arbitrage Mutual Fund
6.41% p.a.
Debt Mutual Fund
5.74% p.a.
Bank Fixed Deposit
6.21% p.a.

Comparison Metric	Arbitrage Mutual Fund	Debt Mutual Fund	Bank Fixed Deposit
Initial Investment Amount	₹50.00 L	₹50.00 L	₹50.00 L
Expected Return Rate	7.2% p.a.	7.5% p.a.	7.5% p.a.
Pre-Tax Gross Maturity Value	₹61.60 L	₹62.11 L	₹62.49 L
Applicable Tax Law	Equity Fund Tax (Sec 112A / 111A)	Slab Rate upon Redemption	Slab Rate Annual Withdrawal
Tax Rate Applied	12.5% LTCG (>₹1.25L exempt)	Slab rate on top of your other income + 4% cess	Slab rate on top of your other income + 4% cess
Total Tax Deducted	₹1.34 L	₹3.00 L	₹2.40 L
Net Post-Tax Maturity Value	₹60.25 L	₹59.12 L	₹59.90 L
Effective Annual Post-Tax Yield	6.41% p.a.	5.74% p.a.	6.21% p.a.

Visual Comparison: Net Payout vs Total Tax Deducted

Tax Efficiency Formula & Live Calculation

Standard Formula

Post-Tax Return = Gross Maturity Value − Capital Gains / Interest Tax

Live Calculation (Plugging Your Values)

Initial Principal (P):₹50.00 L

Investment Tenure (n):3 Years

Other taxable income (yearly) (I):₹15.00 L

Tax regime (R):New (default)

Bank FD Tax Paid (F):₹2.40 L

Arbitrage Fund Equity Tax Paid (A):₹1.34 L

Substituted Equation:

Net Arbitrage Value = ₹61.60 L − ₹1.34 L = ₹60.25 L

Net Extra Wealth from Arbitrage vs FD:₹35,056

Arbitrage funds are taxed as equity: a gain held over 12 months at 12.5% above the ₹1.25 lakh exemption (Section 112A), a shorter one at 20% (Section 111A). Bank FD interest is taxed every year at your slab rate, and a debt fund gain at your slab rate in the year you redeem. Tax is worked out on top of the other income you enter, under the regime you pick, with the Section 87A rebate, any surcharge and 4% cess.

Why Arbitrage Funds Beat Bank FDs for 30% Tax Bracket Investors

Following the Finance Act 2023 amendment, Debt Mutual Funds are taxed at full income tax slab rates upon redemption (losing indexation benefit). Bank FD interest is also taxed at your full slab rate every year.

However, Arbitrage Mutual Funds maintain >65% average exposure to equity shares hedged with futures contracts. As a result, they qualify for Equity Taxation:

LTCG (>1 Year): 12.5% tax rate on gains above ₹1,25,000 threshold (vs 30% + cess for FDs).
STCG (≤1 Year): Flat 20% tax rate (vs 30% + cess for FDs).
Tax Deferral Advantage: Mutual funds do not pay annual tax; returns compound tax-deferred until redemption. In contrast, Bank FDs pay slab tax every year, reducing compounding velocity.

References

How these numbers are checked →

Frequently Asked Questions — FD vs Debt Fund

Why do arbitrage funds beat bank FDs at the 30% slab?

Arbitrage funds are taxed as equity: 12.5% LTCG above ₹1.25 lakh after 12 months. Bank FD interest and debt fund gains are taxed at your full slab rate. At 30% plus cess, a 7% FD nets about 4.85% while a 7% arbitrage fund nets over 6%.

Are debt mutual funds still tax-efficient after April 2023?

Not on rate — debt fund gains bought after 1 April 2023 are taxed at slab rate regardless of holding period, the same as FD interest. The remaining advantage is timing: FD interest is taxed annually as it accrues, while debt fund gains are taxed only when you redeem.

When is a bank FD still the better choice?

When you need a guaranteed maturity value, when the amount is within the ₹5 lakh DICGC deposit insurance cover, or for senior citizens using the 0.5% rate premium and the ₹50,000 Section 80TTB deduction. Debt funds carry credit and interest-rate risk that an FD does not.

What exactly is an arbitrage fund and where does its return come from?

An arbitrage fund buys a stock in the cash market and simultaneously sells the same stock in the futures market, locking in the small price gap between the two. The position is fully hedged, so the fund does not take a market direction call and its return behaves like a short-term debt return, typically in the 6% to 7% range. Because it holds over 65% in equity it is taxed as an equity fund, which is the entire reason investors use it instead of an FD.

Which is better at the 5% or 20% slab rather than 30%?

At the lower slabs the FD closes most of the gap. A 7% FD leaves about 6.64% after tax at the 5% slab and about 5.54% at 20%, against roughly 6.13% for a 7% arbitrage fund taxed at 12.5% long term. So at the 5% slab the FD is actually ahead, at 20% it is a near tie, and only at 30%, where the FD drops to about 4.82%, does the fund win clearly. Add DICGC insurance up to Rs 5 lakh and the FD is the sensible pick for small savers.

How quickly can I get my money out of each?

A debt or arbitrage fund redemption is credited in one to two working days, with SEBI's instant redemption facility on liquid funds allowing up to Rs 50,000 per day within minutes. Breaking an FD is instant but usually costs 0.5% to 1% of the contracted rate as a premature withdrawal penalty, and some tax-saving and special-tenure deposits cannot be broken at all. Arbitrage funds carry an exit load, often 0.25% within 15 to 30 days.

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