5-year FD vs Top Retirement Mutual Fund: Which option has given more returns on 5-year investment

Fixed deposits (FDs) are guaranteed return schemes that have attracted investors since long ago. Investors seeking non-market-linked investments with minimum risk opt for FDs. They want to see their investment grow steadily over time without risking their deposits. FDs are run by post office as well as banks and have a duration of 1, 2, 3, and 5 years. 

The five-year FD provides a tax exemption of up to Rs 1.50 lakh on deposits under Section 80C of the Income Tax Act. 

On the other hand, mutual funds are market-linked programmes where funds invest their money in equities, debts, corporate bonds, and government securities. 

Retirement mutual funds, as the name suggests, are aimed at providing good returns to investors seeking a retirement corpus. 

They come with a five-year lock-in or the retirement age, whichever comes earlier. 

The earnings from both the FD and retirement fund are taxed. 

Since both the 5-year FD and retirement fund have a lock-in period of five years, in this article, we will draw a parallel to the Rs 5 lakh investment as a lump sum in each of the schemes and return on them. 

Here, we are taking the post office 5-year FD, which gives a 7.5 per cent annual interest rate.

Rs 5 lakh investment in 5-year FD

If one invests Rs 5,00,000 in a post office FD for five years, on completion of the tenure, they will get Rs 2,24,974 as estimated returns, while their maturity amount will be Rs 7,24,974. 

Here, it is also important to know that if one hasn't made any other investments, they can also get tax relaxation of up to Rs 1.50 lakh on investment in the five-year FD. 

Rs 5 lakh investment in top retirement fund

The top retirement mutual fund in the five years is ICICI Prudential Retirement Fund - Pure Equity Plan. 

The fund has given a 23.98 per cent return in the five-year period. 

It has performed much better than its benchmark, NIFTY 500 Total Return Index, which has grown by 18.18 per cent annually. 

The fund from ICICI has assets under management of Rs 729.80 crore, while its net asset value (NAV) is Rs 30.4700. 

Had one invested Rs 5 lakh in a lump sum five years ago, they would have got Rs 9,64,631 as long-term capital gains on their investment, and the total value of their investment would have been Rs 14,64,631. 

One gets tax exemption on Rs 1 lakh long-term capital gains, but they need to pay 10 per cent tax on above Rs 1 lakh gains.