FD vs Mutual Fund vs CIT: where रू 1,00,000 actually grows fastest in Nepal

A reader emailed last week. She's 31, recently sold a small piece of land, and has रू 1,00,000 parked in savings that she doesn't need this year. Her question: "FD, mutual fund, or CIT, which one wins?"

The honest answer is it depends, and the dependence is more interesting than that phrase makes it sound. The same रू 1,00,000 can produce wildly different outcomes across these three vehicles, and most of the difference comes down to three things you actually control: your tax slab, your time horizon, and how much variance you can sit with before panicking out.

What follows is the projection on रू 1,00,000 over 1, 5, and 10 years across all three, then the tax, the lock-in, and the variance peeled back so the comparison stays honest.

The three vehicles, in one line each

• Fixed deposit (FD). You hand the bank a sum, they pay a fixed rate for a fixed term. Interest is taxed at 6% TDS at source, from the first rupee. Predictable, liquid-ish, capped on upside.
• Mutual fund. You buy units of a NEPSE-listed equity scheme, managed by firms like Nabil Investment Banking, NMB Capital, Siddhartha Capital, NIBL Ace Capital, NIC Asia Capital, and others. The NAV tracks the underlying portfolio (mostly NEPSE stocks). Capital gains are taxed at 7.5% long-term / 10% short-term, a final tax since the FY 2083/84 budget raised the old 5% / 7.5% rates, and dividends carry 5% TDS under Section 88 of the Income Tax Act.
• Citizen Investment Trust (CIT). A government-backed long-term scheme. You contribute, the balance earns annually-declared interest (no TDS within the scheme), and the contribution is deductible from taxable income up to the combined PF/SSF/CIT cap.

All three show up in the same "where do I put extra money" conversation. They are not the same kind of thing.

The headline projection

Start with रू 1,00,000 today. Realistic FY 2082/83 rates as of mid-2026: FD around 5% gross (≈ 4.7% net of 6% TDS) at most commercial banks, CIT declaring around 7.5% (the FY 2024/25 base was 6.5% with a 1.25% one-time bonus), and an equity mutual fund expected to compound at ~10% over a long horizon, with high variance year to year. Live rates change frequently; check current bank publications, and if you're feeding this in monthly rather than as one lump sum, the SIP calculator will give you the more relevant number.

* The mutual fund 1-year row is the expected value. The realised figure could plausibly land anywhere between रू 80,000 and रू 1,25,000. Plan accordingly.

That table is the easy part. An honest comparison needs three more layers on top.

Layer 1: the CIT tax deduction, which the table hides

The CIT row above leaves out the most important feature of the vehicle, the upfront deduction.

For a salaried person in the 30% slab who's still below the combined PF/SSF/CIT cap, that रू 1,00,000 contribution reduces taxable income by रू 1,00,000. The tax bill drops by रू 30,000 this year. The real cost of the contribution, in cash leaving your bank, is रू 70,000, not रू 1,00,000.

The fair comparison, then, is "what do I get back per rupee of bank cash spent?", not "what does रू 1,00,000 grow to?"

That last column compares what the balance grew to (रू 2,06,100 after 10 years at 7.5%) against the cash you actually deployed. At the 30% slab, CIT's effective 10-year return on cash beats a 10% mutual fund (~159% on a रू 1,00,000 cash outlay), and does so without the variance.

The catch: this advantage only applies up to the deduction cap: the lower of one-third of assessable income or रू 5,00,000 (Rule 21 of the Income Tax Rules). The cap has been unified at रू 5 lakh across all approved funds — SSF, EPF, and CIT alike — since FY 2081/82, when the 15th Amendment to the Income Tax Rules removed the older रू 3,00,000 ceiling for non-SSF contributors. Earlier post on how to compute your runway under the cap.

Layer 2: lock-in is not the same across the three

The projection table treats one rupee like another. Liquidity says otherwise.

• FD. Premature withdrawal usually drops the rate by 1–2 percentage points and may cost a small penalty, but the money is yours within a working day. For a 1–3 year goal, that matters.
• Mutual fund. Listed schemes trade on NEPSE. You can sell on any trading day, but the price is that day's NAV, which is the whole point of the variance discussion below. Settlement is T+2.
• CIT. Designed for retirement. Pre-retirement withdrawals are allowed for housing, medical, and a handful of other purposes once you've held the balance for the qualifying period. Treat it as money you can't reach for several years.

If your रू 1,00,000 is earmarked for a wedding next Mangsir, putting it in CIT is a planning error, not a return-optimisation decision. The deduction is real and the interest is fine, but the cash genuinely can't be pulled back next month.

Layer 3: variance, not just expected return

A 10-year expected return of 10% on a mutual fund is true on average. The path is anything but smooth.

Real NEPSE history, condensed:

• 2018–2019: NEPSE drops sharply, broad mutual fund NAVs follow.
• 2020–2021: strong rally, peak of 3,198.60 on 18 August 2021.
• 2021–2022: ~42% drop from the August 2021 peak to the June 2022 low of 1,848.28. Many funds spent two-plus years below their 2021 NAV.
• 2024–2025: recovery, uneven across schemes.

Someone who invested रू 1,00,000 at the August 2021 peak would have spent late 2022 and most of 2023 looking at a balance closer to रू 60,000. The 10-year return projection still works out eventually. The question is whether you can stare at a 40% paper loss for 18 months without selling.

That's the part the table can't show. Variance is a temperament test, not a spreadsheet line.

A decision framework

Given the same रू 1,00,000, in rough order:

1. Is your emergency fund full? Three months of essentials, in a regular savings account. If not, that's where this money goes; see the emergency fund sizing post.
2. What's the time horizon for this specific रू 1,00,000?
   • Under 1 year. Regular savings or a 6-month FD. Don't reach for the extra yield.
   • 1–3 years. FD, possibly laddered across two maturities so something matures every year.
   • 3–5 years. FD-heavy with maybe a 25% sleeve in a debt-oriented mutual fund.
   • 5+ years. A mutual fund SIP becomes the default, especially if the goal can flex by a year or two.
3. Are you in the 20%+ tax slab and below the combined deduction cap? Some of this money probably belongs in CIT, regardless of horizon. The tax break is doing real work. Mostly relevant for salaried people with stable income; less so for irregular freelance income (covered separately in the freelance tax post).
4. Are you at the 1% slab? Skip CIT's deduction angle entirely. The saving is too small to justify the lock-in. FD or mutual fund based on horizon, full stop.

The mistake to avoid is picking a vehicle by headline return without naming the goal. "Highest return" without a horizon and a tax slab is a noise question.

What about a mix?

For most people the answer isn't one of the three, it's a split. A common allocation for someone in their 30s with a stable salary, an emergency fund already built, and रू 1,00,000 of fresh money to deploy:

• रू 30,000 in CIT (assuming there's deduction room and you're at 20%+ slab).
• रू 30,000 in a 1–2 year FD ladder as the medium-term cushion.
• रू 40,000 into a mutual fund as a one-time SIP buy or split across two months.

That mix reaches across all three time horizons, captures CIT's tax shield, keeps near-term liquidity intact, and gives equity a meaningful slot. The expected return isn't the highest. The consistency is, for someone who needs the money to behave.

Tracking it in Kharchapatra

Each of the three behaves differently in your books, so set them up as separate accounts:

• Fixed Deposit, type: bank account. Log the FD as a transfer from savings into "Fixed Deposit." Mark the maturity date in the description so the rollover reminder is already there.
• Mutual Fund, type: investment account. Log the buy as a transfer; track monthly NAV updates as a single-line balance adjustment if you want the dashboard to reflect current value.
• CIT, type: long-term account. Log payroll auto-deductions as transfers (not expenses, the same trap as PF/SSF, see the salary-slip post). Manual top-ups from a bonus or a one-off lump are also transfers, never expenses.

Cleaner tagging means a more honest annual savings rate at the end of the year, and it's easier to see where the money actually went, not just how much.

What you actually need to decide

Two questions, in order:

1. When do I need this specific रू 1,00,000? The horizon picks the vehicle.
2. What's my marginal tax slab, and is there CIT room left? The slab tells you whether to lean into CIT or not.

Get those right and the table at the top of this post stops being abstract; it starts telling you which row is yours.

Have a specific number you want walked through, your bonus, your share of the family land sale, your festival savings? Email parjanya57@gmail.com and I'll cover real worked examples in a follow-up.