Your Worst-Performing Flexi Cap May Still Outpace Your Best FD — and What That Says About Tax

Most of us have grown up hearing the same advice: FDs are safe, equity is risky, so keep your most important money in a safe place. That’s not entirely wrong. Equity can drop 20% in a bad year, and an FD never will. But “safe” need not always be “better”, especially if you are looking at a 10-year time frame.

In this piece, we explore a simple question: if you had picked one of the worst-performing diversified equity funds a decade ago, purely by bad luck, would you still have been better off than in the safest fixed-income options?

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The Model and Methodology

We took the flexi cap mutual fund with lowest return by actual 10-year CAGR, and compared it against the best fixed deposit rate currently on offer from any Indian bank. For investors who want equity-like liquidity without equity-like volatility, we also included the best-performing Arbitrage fund over the same 10-year period. We invested a hypothetical ₹1 crore in each instrument.

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The Results at a Glance

*Source: Data as of 5th July 2026; Regular MF schemes; 30% income-tax slab assumption.*

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Volatility and Risk Are Two Different Things

• **Volatility** is short-term price movement which you experience if you are invested in an equity product. Volatility does not necessarily mean loss of capital, unless the investor panics and sells when the price is low.
• **Real Risk** is permanent loss of purchasing power: an investment that does not give post-tax returns in excess of inflation. This is the structural risk prevailing in fixed deposits.

Taurus Flexi Cap Growth had the lowest return over the past decade with a 10-year CAGR of 9.71%. Even then, ₹1 crore in this fund grew to ₹2.53 crore pre-tax (ahead of FD's ₹2.01 crore).

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Tax Makes a Strong Case for Equity in the Long Term

The picture shifts decisively once we consider tax:

1. **FD interest is taxed every year** at your peak income-tax slab rate (up to 30%+, plus surcharge and cess).
2. **Equity fund gains are taxed only once at exit**, at 12.5% LTCG (with annual ₹1.25 lakh exemption).

That tax differential compounds over 10 years. Furthermore, the **Arbitrage Fund** essentially matches a top FD’s post-tax return (₹1.68 Cr vs ₹1.71 Cr), but with daily liquidity and zero premature-withdrawal penalties, because arbitrage funds enjoy equity taxation.

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Conclusion

If you’re holding a large FD purely because it feels safer, and the money isn’t your immediate emergency fund and has a 5-to-10-year horizon, ask what that safety is costing you — because the tax structure works against an FD every single year the money sits there.