New Delhi, Oct. 22 -- A post office time deposit offering 6.9% interest may appear more attractive than a bank fixed deposit (FD) offering 6.25%. But what if an arbitrage mutual fund delivering a slightly lower return leaves investors with more money after taxes? The answer depends largely on the investor's income tax bracket and how long the money remains invested.

For investors looking to park Rs.5 lakh for a year or longer, the difference in post-tax earnings can be substantial. While post office deposits and bank FDs offer predictable returns, arbitrage funds enjoy relatively favourable tax treatment when held for more than 12 months.

Uttam Agarwal, Chief Business Officer, Bajaj Capital - La Premier, explains how the three options c...