To begin with, comparison of equity and debt funds is not correct fundamentally as they belong to two different risk categories and have different return implications. Also their fit into goals is different.

Here are 2 points for you to consider:

· The above equation would have been strongly weighted in favour of equity funds had the 10% tax on equity fund LTCG not existed. That has largely taken away the tax attractiveness of equity funds vis-à-vis debt funds in the long run. To that extent the tax on equity funds has surely reduce its importance, even though partially.

· In the above illustration, we have assumed that the equity fund and the debt fund generate the same return, which is rarely the case in reality as equity funds do generate substantially higher returns than debt funds over longer periods of time. The message is that now equity funds will have to sharply outperform the debt fund returns to compensate for the loss of tax and indexation benefits on equity funds.

Hence, it is important for you to know whether it is suitable for you to opt for dividend option in debt funds, depending on your tax profile.