Definition
Capital Gains on Mutual Funds
Capital gains tax on mutual funds depends on whether the fund is equity or non-equity and how long you held the units before selling.
For equity funds, gains on units held over a year are long-term and taxed at a concessional rate above an annual exemption, while gains within a year are short-term and taxed at a higher flat rate. Rates and the exemption threshold were revised in the July 2024 Budget, so check current rules.
For most debt funds bought after April 2023, gains are taxed at your slab rate regardless of holding period, removing the earlier indexation benefit. Hybrid and other funds are taxed based on their equity allocation, making the fund's category crucial for tax planning.
Related terms
- Equity Savings FundAn equity savings fund blends equity, arbitrage and debt so that it holds enough total equity to qualify for equity taxation while hedging much of it to keep volatility low.
- Capital Gains TaxCapital gains tax is the tax you pay on the profit from selling an asset such as shares, mutual funds, gold or property.
- Switch (Mutual Fund)A switch moves money from one scheme to another within the same AMC in a single instruction, and is treated as a redemption of the first scheme followed by a fresh purchase of the second.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.