Arbitrage Fund vs FD Calculator
A fixed deposit and an arbitrage fund can pay a similar headline rate and still leave you with very different amounts, because they are taxed differently. Enter your amount, holding period and tax slab to see which one actually pays more after tax.
For the full background, read our guide to arbitrage funds. This tool is for education only — not investment advice.
Your investment
Amount, holding period and tax slab, then the two rates to compare.
More than 12 months — fund gains taxed as LTCG at 12.5%
This financial year. The ₹1.25 lakh LTCG exemption is shared across all your equity gains.
FD interest is added to income and taxed at this rate plus 4% cess (31.20% effective), every year as it accrues.
compounded quarterly
before tax
After tax, the arbitrage fund leaves you
₹35,869
more than the FD, on ₹10 L held for 18 months at the 30% slab.
FD rate needed to match the fund
9.70%
you're offered 6.50%
FD gain after tax
₹69,396
4.57% a year
Fund gain after tax
₹1.05 L
6.90% a year
Where the gain goes
| Figure | Fixed deposit | Arbitrage fund |
|---|---|---|
| Gain before tax | ₹1,01,548 | ₹1,05,265 |
| Tax | −₹31,471paid each year | ₹0on sale, 13.0% |
| Growth lost to tax | −₹681 | none |
| You keep | ₹69,396 | ₹1,05,265 |
How this is worked out. The same amount sits in each for 18 months. FD interest is taxed at your 30% slab every year as it accrues, so the tax leaves the deposit and stops compounding; the fund is taxed as equity only when you sell (12.5% long-term). Whatever is left after tax is what wins.
Who wins at each tax slab
Bar length shows how much more you keep; your slab is shaded.
- 0%Fund +₹3,718
- 5%Fund +₹9,106
- 10%Fund +₹14,482
- 15%Fund +₹19,846
- 20%Fund +₹25,199
- 25%Fund +₹30,540
- 30% (your slab)Fund +₹35,869
Free JPVFin newsletter
New calculators and guides by email. Unsubscribe any time. Nothing you typed in the calculator is sent.
How this is calculated
FD before tax (quarterly compounding)
FD tax, paid every year
Arbitrage fund value
LTCG with exemption
Post-tax yields
Difference
The gap is driven by tax, not returns. Both products yield roughly the same gross, but FD interest is taxed at your full slab (31.20%) while the fund pays 13.00% on long-term gains. The higher your slab, the wider the gap — and the longer you hold, the wider still, because the FD's tax is paid every year while the fund's is paid once at the end.
Estimates only. FD rates are card rates for deposits under ₹3 crore as of August 2026 and change frequently; arbitrage returns are past category figures, not a forecast — these funds carry market risk and returns vary with the cash-futures spread. The FD is modelled the way it is taxed: quarterly compounding, with each year's interest taxed in that year, which matches the post-tax calculator and our FD article. Exit loads and expense ratios are excluded, and surcharge above ₹50 lakh income is not applied. Confirm current rates and your own tax position before investing.
Why the tax treatment differs
The two products are taxed under completely different heads:
- FD interest is income. It is added to your total income and taxed at your slab rate — up to 31.2% including cess.
- Arbitrage fund gains are capital gains, and because the fund holds 65%+ equity it gets equity treatment: 12.5% long term, 20% short term.
The 12-month line
Holding period changes the answer more than any other input. Redeem at 12 months and gains are still short-term, taxed at 20% plus cess with no exemption — Section 2(42A) treats a unit held for not more than 12 months as short-term, so the line falls after the twelfth month, not on it. Hold past it and the rate drops to 12.5% plus cess, and the ₹1.25 lakh annual exemption applies. For money you may need at short notice, that difference can erase the fund's advantage entirely.
What you give up
An FD is a contract: the rate is fixed and deposits are insured up to ₹5 lakh per bank by DICGC. An arbitrage fund is a market product. Its return comes from the cash-futures spread, which narrows when volatility is low, so returns move around and are never guaranteed. The comparison is tax efficiency versus certainty, not free money.
Who this favors
- Higher slabs (20%+) gain the most, because that is where slab tax on interest bites hardest.
- Money parked over a year — the long-term rate and exemption both need more than 12 months.
- Larger amounts, where a one to two point post-tax gap is worth the loss of a guaranteed rate.
Frequently asked questions
Are arbitrage funds taxed like equity or debt?
Like equity. An arbitrage fund keeps at least 65% of its portfolio in equity (through hedged cash-and-futures positions), so it qualifies for equity taxation. Gains on units held for more than 12 months are long-term and taxed at 12.5% under Section 112A, above a ₹1.25 lakh annual exemption. Section 2(42A) treats a unit held for not more than 12 months as short-term, so gains at exactly 12 months are still short-term and taxed at 20% under Section 111A.
Why can an arbitrage fund beat an FD paying a similar rate?
Because of tax, not returns. FD interest is added to your income and taxed at your full slab rate — 31.2% including cess in the 30% bracket — and that tax is due every year as the interest accrues, so the money it takes out stops compounding. An arbitrage fund held over a year pays 12.5% plus cess on gains above ₹1.25 lakh, once, when you sell. Two products yielding a similar gross return therefore leave very different amounts after tax.
At which tax slab does an FD still make sense?
At lower slabs the gap narrows sharply, and where your income is within the rebate limit and no tax is payable on the interest, an FD paying a higher headline rate can win outright. The calculator shows the outcome at every slab so you can see where the crossover falls for your own numbers.
Is an arbitrage fund as safe as a fixed deposit?
No. A bank FD gives a contractually fixed rate and deposits are insured up to ₹5 lakh per bank per depositor by DICGC. An arbitrage fund's return is not guaranteed: it depends on the spread between cash and futures prices, which narrows when market volatility is low. Returns are usually stable but they are not fixed, and the fund can carry exit loads.
Does the ₹1.25 lakh exemption apply to each fund separately?
No. It is a single annual limit shared across all your long-term equity gains — shares and equity mutual funds combined — in the same financial year. The calculator lets you enter how much of it you have already used so the result reflects your actual position.
Is TDS deducted on arbitrage fund gains?
For resident investors there is no TDS on redemption of mutual fund units; you report the capital gain in your return. Bank FDs are different: TDS at 10% applies once interest crosses the annual threshold, though that is only a deduction on account — the final liability is still at your slab rate.
Sources and references
- Capital gains rates and the ₹1.25 lakh exemption (Sections 111A and 112A): Income Tax Department, Government of India
- Income tax slabs, 87A rebate and cess for the new regime: Income Tax Department
- Equity-oriented fund definition (65% equity threshold): SEBI
- Deposit insurance of ₹5 lakh per depositor per bank: DICGC
- Fund NAV and category returns: AMFI India
- FD card rates are the published rates of each bank for deposits under ₹3 crore, as of August 2026, and are editable in the calculator.
Disclaimer: This calculator is for educational purposes only and does not constitute investment or tax advice. Figures are estimates and exclude expense ratios, exit loads and surcharge on incomes above ₹50 lakh. Tax rules and deposit rates change; confirm current figures with your bank, fund house or a qualified tax adviser before investing.