Long-Term Fixed Deposit: Ujjawal Pahwa Suggests, Not the Best Choice!

Long-term fixed deposits may not be ideal due to lower returns compared to other options, potential erosion of real returns with inflation, and restricted liquidity, limiting the ability to seize better opportunities. In a dynamic financial landscape, choosing flexible and potentially higher-yielding investments may be a wiser long-term wealth accumulation strategy. Ujjawal Pahwa, finance content creator recommends choosing mutual funds over fixed deposits. Keep on reading to understand why.

Why FD's are Not the Best Choice, Explains Ujjawal Pahwa

Let's delve into the taxation of Fixed Deposits. The interest income is fully taxable—add it to your total income and it gets taxed at the applicable slab rates. Banks preemptively deduct tax at source when crediting interest if it exceeds Rs. 40,000 for individuals (excluding senior citizens). Notably, TDS is deducted yearly, not upon FD maturity, in the case of a 3-year FD.

If TDS is deducted, it must be included in your Interest Income for tax return purposes. The issue compounds with low-interest rates and the individual's tax burden.

Considering a long-term horizon? Mutual Funds may offer a solution tailored to your risk appetite, presenting a potentially more favourable option in light of the tax implications and interest rate scenario.

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Having gained insight into tax deductions for FDs and mutual funds, steer clear of long-term fixed deposits for enhanced returns on your investments.