Ram intends to invest ₹10 lakh for a period of one year. He is in the tax bracket of 30%. He has been given the following options: (i) Fixed deposit with a bank with interest of 8%. (ii) Debt fund of a mutual fund with e

Answer 3 - Investment Advice for Ram (i) Fixed Deposit with a bank: Interest on Fixed Deposit of ₹10,00,000 @ 8% = ₹80,000 Tax @ 30% = ₹24,000 Net Income = ₹56,000 (ii) Debt Fund of a Mutual Fund: Return @ 7% = ₹70,000 Tax @ 30% = ₹21,000 Net Income = ₹49,000 No Indirect Tax Benefit Available. (iii) Inflation Index Bond: Return = 4.5% (inflation) + 3% = 7.5% Total Return = 7.5% of ₹10,00,000 = ₹75,000 Tax @ 30% = ₹22,500 Net Income = ₹52,500 (iv) Tax Free Bond: Coupon @ 6.8% = ₹68,000 Tax = NIL Net Income = ₹68,000 Thus, the Tax Free Bond @ 6.8% shall be most beneficial for Ram in the present circumstances.