Equity-Oriented vs Non-Equity Fund (Tax)

How your mutual fund gains are taxed in India hinges on a single line: does the scheme hold at least 65% in domestic equities? Cross that threshold and you are an equity-oriented fund, with friendlier treatment. Fall short and you are taxed as a non-equity fund, which can be markedly harsher.

Equity-Oriented Funds

For an equity-oriented fund, the holding period that matters is 12 months. Sell within a year and short-term capital gains are taxed at 20%; hold longer and long-term gains are taxed at 12.5%, with the first ₹1.25 lakh of long-term gains each year exempt. These rates apply to transfers made on or after 23 July 2024, when the Budget raised them from the old 15% and 10%. This category covers pure equity funds, most ELSS schemes and equity-heavy hybrids.

Non-Equity Funds

Everything else — debt funds, gold funds, international funds and conservative hybrids — sits outside that favoured bucket, and here the rules turned sharply less generous.

The key change: "specified mutual funds" bought on or after 1 April 2023 — broadly those holding more than 65% in debt and money-market instruments — have all gains taxed at your slab rate as short-term, regardless of how long you hold. There is no long-term rate and no indexation. For someone in the top bracket, that is a heavy levy on what used to be tax-efficient debt investing.

For units bought before April 2023, the older rules still apply on a holding-period basis. And there is a silver lining from a 2024 amendment: gold, international and many fund-of-funds escape the punitive slab-only treatment they briefly faced, instead qualifying for a 12.5% long-term rate after a longer holding period.

What It Means In Practice

The lesson for Indian investors is to know your fund's true asset mix, not just its label. A so-called "hybrid" can land on either side of the 65% line, and that single fact can swing your after-tax return dramatically. Always check the category before you invest — and again before you redeem.