Financed Desk – Fixed Deposits (FDs) have always been a favorite choice among conservative investors. A popular choice is the 5-year FD, because it offers tax benefits under Section 80C of the Income Tax Act, for investments up to Rs 1.50 lakh.
Whereas, retirement mutual funds, offer potentially higher returns but come with market risks. An example of such a fund is the ICICI Prudential Retirement Fund – Pure Equity Plan, which has a five-year lock-in period
Investment in a 5-Year Fixed Deposit:
If you put Rs 5,00,000 into a post office 5-year FD with an annual interest rate of 7.5%, at the end of five years, your total return would be Rs 2,24,974. Additionally, if this is your only investment under Section 80C, you could also benefit from a tax deduction.
Investment in a Top Retirement Mutual Fund:
Taking the ICICI Prudential Retirement Fund – Pure Equity Plan as an example. If you had invested Rs 5,00,000 in this fund, your returns would have been Rs 9,64,631. However, only Rs 1 lakh of long-term capital gains from mutual funds is tax-exempt; any gains above that are taxed at 10%.
So, the retirement mutual fund outperforms the fixed deposit by a significant margin. While the FD offers safety, the mutual fund provides higher potential returns, though with higher risks.
If you prefer a guaranteed return and wish to avoid any risks, a 5-year FD is a better choice. However, if you are willing to take on some market risk for the chance of significantly higher returns, a retirement mutual fund is a good option.
