How are Mutual Funds taxed?
Investors, who have a mutual fund portfolio, must have a good understanding of how their returns are taxed. The illustration above gives a quick summary of all that you need to know about mutual fund taxation in both equity and debt funds.
Mutual Funds can provide earnings in two forms- Capital Gains and Dividends. The profit that is made on mutual fund investments when the units are redeemed or sold is referred to as capital gains.
While capital gains are taxable at the hands of investors, the dividend options of mutual funds, called Dividend Distribution Tax (DDT) is paid by the fund house (Asset Management Company) on behalf of the investors.
The capital gains is categorized into two segments depending upon the holding period. It can be a short-term capital gains tax (STCG) or a long-term capital gains (LTCG). The tax applicable on profits is known as “capital-gains tax”.
Apart from these, there is another type of tax called the Securities Transaction Tax (STT) which is levied only on sale of MF units in equity and balanced funds, applicable on both open ended and close ended schemes.
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Disclaimer – This document is for general information only and does not have regard to specific investment objectives, financial situation and the particular needs of any specific person who may receive this information. This document provides general information on performance; financial planning and/or comparisons made are only for illustration purposes. The data/information used/disclosed in this document is only for information purposes and not guaranteeing / indicating any returns. Investments in MFs and secondary markets inherently involve risks and recipient should consult their legal, tax and financial advisors before investing. Recipient should also understand that any reference to the indices/ sectors/ securities/ schemes etc. in the document is only for illustration purpose and should not be considered as recommendation(s) from the author or L&T Investment Management Limited, the asset management company of L&T Mutual Fund or any of its associates. Recipient of this information should understand that statements made herein regarding future prospects may not be realized or achieved. The distribution of this document in certain jurisdictions may be restricted or totally prohibited and accordingly, persons who come into possession of this document are required to inform themselves about, and to observe, any such restrictions.
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