Worked Example
Bank-FD vs Liquid-Fund: which builds more wealth over 5 years?
Scenario
Rohit, age 30, software professional in Pune, ₹12 lakh annual income, ₹50K monthly expenses, exploring this question for his financial plan
Inputs
- Years
- 5
- Amount INR
- 5,00,000
- Bank-FD tax %
- 30
- Bank-FD return %
- 6.5
- Liquid-Fund tax %
- 12.5
- Liquid-Fund return %
- 5
Calculation
- 1.
Bank-FD effective post-tax rate
6.5% × (1 − 30% tax) → 4.55%
- 2.
Liquid-Fund effective post-tax rate
5% × (1 − 12.5% tax) → 4.38%
- 3.
Bank-FD corpus at year 5
₹5L × (1+0.045)^5 → ₹6.25 L
- 4.
Liquid-Fund corpus at year 5
₹5L × (1+0.044)^5 → ₹6.19 L
- 5.
Wealth difference
|624583 − 619373| → ₹5,210
Conclusion
Bank-FD wins by approximately ₹0.1 lakh over 5 years — driven by return rate.
Tradeoffs
Post-tax real returns matter more than nominal headline rates. Bank-FD loses more to taxation. Risk profiles differ too — guaranteed vs market-linked. Adjust for risk tolerance.