Investing · 5 min read
Are Mutual Fund Gains Taxable?
How Mutual Funds Are Taxed
Yes, when you redeem. How much depends on the type of fund and how long you held it, and each SIP instalment counts separately.
Ravinder Pal Singh Ubeja ·
You pay tax on mutual fund gains when you redeem or switch, not while you stay invested. The rate depends on whether the fund is equity or debt and how long each unit was held.
Equity-oriented funds
Under the rules that took effect on 23 July 2024:
- Held 12 months or less: short-term gains taxed at 20 percent.
- Held more than 12 months: long-term gains taxed at 12.5 percent, on gains above ₹1.25 lakh in a financial year across all your equity investments.
Debt funds
Gains on debt funds bought on or after 1 April 2023 are added to your income and taxed at your slab rate, however long you hold them. Older debt fund units have different rules depending on when they were bought and sold.
SIPs
Each SIP instalment is a separate purchase with its own holding period. When you redeem, the oldest units are treated as sold first, so units from recent months can still be short-term even if the SIP started years ago.
Dividends
Dividends (IDCW) are added to your income and taxed at your slab rate, with tax deducted at source above a threshold. For most long-term investors the growth option is more tax-efficient.
Using the rules in your favour
- Spread redemptions across financial years to use the ₹1.25 lakh exemption each year.
- Hold equity units for more than 12 months where you can.
- Switching between schemes counts as a redemption and can trigger tax and exit load.
Rates and thresholds can change in any budget. We confirm the position for the year you actually redeem, and plan which units to sell first.