What gives the highest return in Nepal: FD, mutual fund, or CIT?

Over a single year, FDs and CIT usually land within a percent or two of each other (FD ~5%, CIT ~7%), while a mutual fund can be anywhere from -20% to +30% depending on NEPSE. Over 10+ years, an equity mutual fund has historically beaten both — but only if you actually stayed invested through the drawdowns. The right answer depends on your tax slab, your time horizon, and your temperament, not the headline rate.

Are mutual fund returns taxed in Nepal?

Yes, but lightly. Capital gains on listed mutual fund units are taxed at 5% for long-term holdings (over 365 days) and 7.5% for short-term, after deducting brokerage and commission. Dividends from the scheme are typically subject to 5% TDS at source, with an exemption up to NPR 25,000 per year. The effective tax drag is small compared to your salary slab — that's part of why equity becomes attractive once your tax-advantaged retirement buckets are full.

Is CIT better than a fixed deposit in Nepal?

If you're in the 20%+ tax slab and still under the deduction cap, yes — CIT's tax break alone adds 20–36% to your effective first-year return, on top of an interest rate comparable to or higher than an FD. If you're in the 1% slab, or you'll need the money inside three years, an FD is the more honest pick.

Can I lose money in a Nepali mutual fund?

Yes. NAVs track NEPSE, which lost about 41.5% from its August 2021 peak to June 2022. A रू 1,00,000 invested at the August 2021 peak spent the next two years below water. Mutual funds reward time and discipline, not entry timing — but the variance is real and you have to be able to sit through it.

How much should I keep in FD vs mutual fund vs CIT in Nepal?

Match each rupee to its job. Money you'll need in 1–3 years (down payment, wedding, vehicle) goes in an FD. Long-term retirement money up to the deduction cap goes in CIT. Money you genuinely won't need for 5+ years goes into a mutual fund. Start with the time horizon, not the headline return.

FD vs mutual fund vs CIT in Nepal: which is best

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

The honest answer is it depends, but the dependence is more interesting than that suggests. The same रू 1,00,000 can produce wildly different outcomes across these three vehicles, and the differences are mostly about three things you control: your tax slab, your time horizon, and how much variance you can stomach without panicking out.

This post walks through the projection on रू 1,00,000 over 1, 5, and 10 years across all three, then strips out the tax, the lock-in, and the variance so the comparison is honest.

The three vehicles, in one line each

Fixed deposit (FD). You hand the bank a sum, they pay you a fixed rate for a fixed term. Interest above NPR 25,000/year is taxed at 5% TDS at source. 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 moves with the underlying portfolio (mostly NEPSE stocks). Capital gains taxed at 5% long-term / 7.5% short-term, dividends at 5% TDS.
Citizen Investment Trust (CIT). A government-backed long-term scheme. You contribute, the balance earns annually-declared interest (no TDS within the scheme), and your contribution is deductible from taxable income up to the combined PF/SSF/CIT cap.

You'll see all three in the same conversation about "where do I put extra money." They are not the same kind of thing.

The headline projection

Assume you start with रू 1,00,000 today. Realistic FY 2082/83 rates as of mid-2026: FD around 5% gross (≈ 4.75% net of 5% 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 very high variance year to year). Live rates change frequently — check current bank publications.

Vehicle	After 1 year	After 5 years	After 10 years
Fixed deposit (4.75% net)	रू 1,04,750	रू 1,26,100	रू 1,59,000
Mutual fund (~10% expected)	रू 1,10,000*	रू 1,61,100	रू 2,59,400
CIT (7.5%)	रू 1,07,500	रू 1,43,600	रू 2,06,100

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

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

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

The CIT row above doesn't reflect the most important feature of the vehicle — the upfront deduction.

If you're a salaried person in the 30% slab and you're below the combined PF/SSF/CIT cap, that रू 1,00,000 contribution reduces your taxable income by रू 1,00,000. Your tax bill drops by रू 30,000 this year. The real cost of the contribution, in terms of money out of your bank, is रू 70,000, not रू 1,00,000.

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

Slab	CIT cost on a रू 1,00,000 contribution	Effective 10-year return on cost
1%	रू 99,000	~108% (interest only, almost no tax shield)
10%	रू 90,000	~129%
20%	रू 80,000	~158%
30%	रू 70,000	~194%
36%	रू 64,000	~222%

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 actually 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 combined deduction cap, which is the lower of one-third of assessable income or रू 5,00,000 (covering PF/SSF and CIT together). The live figure can move with each year's budget. 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, this matters.
Mutual fund. Listed schemes trade on NEPSE. You can sell on any trading day, but you sell at 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 you genuinely can't pull the cash 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: ~41.5% drop from the August 2021 peak to mid-2022. Many funds were below their 2021 NAV for two-plus years.
2024–2025: recovery, but uneven across schemes.

If you'd invested रू 1,00,000 at the August 2021 peak, you 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're willing to 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:

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.
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. Mutual fund SIP becomes the default, especially if the goal can flex by a year or two.
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 affects salaried people with stable income; less relevant for irregular freelance income (covered separately in the freelance tax post).
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 split 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. It's not the highest expected return — it's the highest consistent return for someone who needs the money to behave.

Tracking it in Kharchapatra

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

Fixed Deposit — type: bank account. Log the FD as a transfer from your savings into "Fixed Deposit." Mark the maturity date in the description so you remember to roll it over.
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 one-off lump are also transfers, never expenses.

The cleaner the tagging, the more honest your annual savings rate looks at the end of the year — and the easier it is to see where the money actually went, not just how much.

What you actually need to decide

Two questions, in order:

When do I need this specific रू 1,00,000? The horizon picks the vehicle.
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.