I have two questions. If I sell my equity fund units before the completion of a year, is short term capital gains (STCG) tax deducted at source before the proceeds are credited to my bank account? If a mutual fund gives a return of 60 per cent within a year, is it wise to book profits?
-Dr. Saxena
The rate of STCG tax as per current tax norms is 10 per cent. Whether you redeem your mutual fund units or sell your shares within a year of buying, you need to pay this tax on the gain. You need to specify the short term gain in the income tax return that you file and pay the tax accordingly. The broker or the mutual fund company does not deduct this tax at source. Whether it is a good idea to book profits occasionally and pay STCG tax is a personal call that depends on your financial status, goals and risk appetite. You need to assess the time horizon you have and for how long you would like your money to stay invested. Historically it has been proved that equity investments reap best results when one invests for the long term. Yet again, how each individual defines "long-term" varies.
This article was originally published on February 21, 2008.
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