The following appeared as a guest post in BasuNivesh Learn…Invest…Succeed !!! on May 1st 2013. The blog is authored by Basavaraj Tonagatti a Certified Financial Planner from Bangalore. His posts are honest, sincere and balanced.
All of us would like to get better returns on our investments. However with returns or capital gain comes knocking its evil twin – taxes. American entertainer Will Rogers once said, “The only difference between death and taxes is that death doesn’t get worse …”!
Trouble is tax rules are different for different investments. If a holding period of 1 year is considered ‘long term’ for capital gain taxation of Gold ETFs, it is 3 years for E-gold. To add to that the taxation rules also differ. This makes it difficult to compare the two and decide which is better if I want to invest for just a few years or many years.
Consider fixed deposits and debt funds. Both are ‘debt’ products. However tax on FD (or RD) interest should be declared and paid onaccrual basis (that is each year) while tax on debt funds can be deferred until redemption. This can make a considerable difference in the corpus if the investment period is long.
The main problem is most investment calculators available online do not take into account taxation rules. Based on the suggestions of Basavaraj and a few encouraging readers like Kapil Tiwari, I have made a calculator with gives the post-tax corpus of several common instruments for a given lump sum investment. It also includes a table in which the tax rules for different instruments are listed to serve as a ready-reckoner. The minimum investment period considered is 1 year. So only long term capital gains will be computed.
A recurring deposit calculator with a table listing the monthly pre-tax and post-tax interest earned is also available (I will post an updated version of this separately).
Use the calculators and let us know your feedback. Suggestions to modify the calculator are welcome.
Download the Lump Sum Investment Returns Comparator (updated Jan. 2014 with NRE fixed deposits)
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