Worked Example
Index-Fund vs Active-Fund: which builds more wealth over 20 years?
Scenario
Anjali, age 35, mid-career marketing manager in Mumbai, ₹18 lakh annual income, married with one child, ₹70K monthly household expenses
Inputs
- Years
- 20
- Amount INR
- 10,00,000
- Index-Fund tax %
- 12.5
- Active-Fund tax %
- 12.5
- Index-Fund return %
- 11
- Active-Fund return %
- 12
Calculation
- 1.
Index-Fund effective post-tax rate
11% × (1 − 12.5% tax) → 9.63%
- 2.
Active-Fund effective post-tax rate
12% × (1 − 12.5% tax) → 10.5%
- 3.
Index-Fund corpus at year 20
₹10L × (1+0.096)^20 → ₹62.83 L
- 4.
Active-Fund corpus at year 20
₹10L × (1+0.105)^20 → ₹73.66 L
- 5.
Wealth difference
|6283363 − 7366235| → ₹10.83 L
Conclusion
Active-Fund wins by approximately ₹10.8 lakh over 20 years — driven by return rate.
Tradeoffs
Post-tax real returns matter more than nominal headline rates. Active-Fund loses more to taxation. Risk profiles differ too — guaranteed vs market-linked. Adjust for risk tolerance.