Is switching of funds taxable?
Let us say you want to switch from one mutual fund to another (of the same or another company) fund in less than 12 months. Will the switching attract short term capital gains tax?
Answer : 010
Yes, Switch in and
switch out would be treated as transfer for the purpose of deciding
whether a transaction is liable to capital gains tax.
In case of switch in/out, an individual merely moves out of one fund and moves into another fund. This is tantamount to selling your funds from one mutual fund house and buying some funds in a different mutual fund house.
Let's take an example:
| Mutual Fund | NAV (Rs) | Units | Value (Rs) |
| XYZ (Switch Out Unit) | 12 | 1000 | 12000 |
| ABC (Switch In Unit) | 15 | 800 | 12000 |
As you can see in the above
example, the individual effectively sells a particular unit and buys
another unit with the sale proceeds. Please note that the money does not
flow into the hands of the investor but the sale proceeds is reinvested
in another unit that may have a unit value higher/lower than the one
being sold. Accordingly the number of units may be reduced/increased due to the unit NAV.
So, be careful before you switch mutual funds. Your broker or fund house may not warn you from the taxation angle, but you ought to take care, for it is your money.
Related Posts:
- Ten most common Mutual Fund myths
- What are direct Mutual Funds in India
- See what people say when they move from the rat race to financial freedom
- Learn how to pursue Financial Freedom
- Save Taxes on Capital Gains
- Read what readers of the book have been saying.
- Double Indexation Benefit on Mutual Funds
- All about Mutual Funds
Cheers
Manoj Arora
Freedom can buy you....what money cannot !!
No comments:
Post a Comment
Feel free to ASK.... that is the first step towards Financial Freedom !!