Hello All,
Welcome to my new personal finance and investment blog. This blog will focus on personal wealth creation over long term with modern financial instruments.
Many people get surprised when I say "My FD balance is zero". Lets understand rational behind it.
Fixed deposit is traditional saving instrument over the years, however certainly not tax efficient. Take a example. Consider 3 financial instruments FD, PPF and Equity Mutual Fund and amount invested is 1,00,000 for 1 year. For simplicity, we will assume annual returns at 8% for all.
Maturity amount is 1,08,000 and 8,000 is your profit. This profit is added to your annual income for taxation. In case your income is above 10 Lac, you are in 30% tax bracket. Lets calculate net income.
Net Income = Profit - Tax
FD Income = 8000 - 2496 (30% tax + 4% cess on tax)
FD Income = 5,504
PPF Income is tax free (lock in period is 15 years)
PPF Income = 8,000 - 0 = 8,000
Equity MF Income is tax free after 1 year upto 1 Lac
Equity MF Income = 8000 - 0 = 8,000
It is evident that FD returns are only 5.5% while PPF and MF returns are much better.
In developing countries like India, inflation rate is around 6%, so FD is actually giving you negative returns and your wealth is diminishing gradually.
Hope now you understand - Why I have zero FD !
I will continue to post more investment topics on this blog, provide your valuable comments to improve this blog.
Learn and invest with Finology
Thanks
Mihir Doshi
Welcome to my new personal finance and investment blog. This blog will focus on personal wealth creation over long term with modern financial instruments.
Many people get surprised when I say "My FD balance is zero". Lets understand rational behind it.
Fixed deposit is traditional saving instrument over the years, however certainly not tax efficient. Take a example. Consider 3 financial instruments FD, PPF and Equity Mutual Fund and amount invested is 1,00,000 for 1 year. For simplicity, we will assume annual returns at 8% for all.
Maturity amount is 1,08,000 and 8,000 is your profit. This profit is added to your annual income for taxation. In case your income is above 10 Lac, you are in 30% tax bracket. Lets calculate net income.
Net Income = Profit - Tax
FD Income = 8000 - 2496 (30% tax + 4% cess on tax)
FD Income = 5,504
PPF Income is tax free (lock in period is 15 years)
PPF Income = 8,000 - 0 = 8,000
Equity MF Income is tax free after 1 year upto 1 Lac
Equity MF Income = 8000 - 0 = 8,000
It is evident that FD returns are only 5.5% while PPF and MF returns are much better.
In developing countries like India, inflation rate is around 6%, so FD is actually giving you negative returns and your wealth is diminishing gradually.
Hope now you understand - Why I have zero FD !
I will continue to post more investment topics on this blog, provide your valuable comments to improve this blog.
Learn and invest with Finology
Thanks
Mihir Doshi
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