What Changed in 2023
Since April 2023, gains from debt mutual funds (including FoFs and international funds) have been taxed as per the investor's income tax slab, regardless of holding period. The earlier benefit of indexation with 20% LTCG after three years is gone.
The FY26 Picture
In practice, this means a 30% taxpayer holding a debt fund for five years pays 30% on gains — the same as a fixed deposit. For many investors, this has made bank FDs, RBI bonds, and SGBs more attractive on a post-tax basis.
Where Debt Funds Still Win
Debt funds retain advantages in flexibility (no lock-in), potential for mark-to-market upside in rate-cut cycles, and access to a range of credit profiles. For investors in the 5% or 20% tax bracket, debt funds can still be competitive. For 30% taxpayers, compare carefully with FD equivalents before investing.