How are mutual funds taxed?
Investors, who have a portfolio of mutual funds, must understand well how their returns are taxed. The illustration above offers a quick summary of everything you need to know about the taxation of mutual funds in both equity, net worth and debt funds.
Investment funds You can provide earnings in two ways: capital gains and dividends. The benefit obtained from mutual fund investments when the units are exchanged or sold is known as capital gains.
While capital gains are subject to taxes at the hands of investors, the dividend options of mutual funds, called Dividend Distribution Taxes (DDT), are paid by the fund house (Asset Management Company) on behalf of the investors.
Capital gains are classified into two segments depending on the holding period. It can be a short-term capital gains tax (STCG) or a long-term capital gain (LTCG). The tax applicable to earnings 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, net worth and balanced funds , applicable in both open and closed schemes.
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