The gain or profit from mutual funds is considered as capital gain and taxed accordingly. Many times, people get confused that if they will remain invested, they would get taxed. But that’s not the case. In mutual funds, only the realized gains get taxed. When we say realised gains, it means that the gains that arise after selling the units of mutual funds. Taxation on mutual funds is largely considered to be an intricate subject. This is because the taxes paid on mutual funds chiefly depend on various factors such as type of fund, investment tenure, and which income slab you belong to. The following figure summarises mutual fund taxation.
Types of Funds
Taxation would differ depending upon the type of fund you are invested in. And since there are various kinds of funds, the Securities and Exchange Board of India (SEBI) has bucketed them into different categories depending upon their traits. However, when it comes to taxation there are three categories that we need to be aware of which we have briefly explained as below.
Equity Funds
Equity funds are those that predominantly invest their assets in equity and related instruments. Funds such as large-cap funds, mid-cap funds, small-cap funds, multi-cap funds, sectoral or thematic funds, etc. fall under equity funds. Equity funds are taxed differently and are pretty straight forward and easy to understand.
Fixed Income or Debt Funds
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