Defining Long-term Gains

If I hold an FMP, a liquid fund, or a debt fund for more than a year, what will be the tax treatment? Please consider dividend as well as growth plans. The tax comparisons on your site assume that liquid funds are held for less than one year (usually true). So, I could not figure this out.
- D. Gupta

Debt funds including Fixed Maturity Plans (FMPs) and liquid funds when sold after 365 days from the date of purchase; then any capital gains/loss made on it would be treated as Long-Term in nature and the investor would be liable to pay Long-term Capital Gains Tax at the time of the redemption of units. Tax calculation for Long term capital gains for both dividend as well as growth options are as follows:

Debt Funds    Dividend Option    Growth Option Initial Investment   100000   100000 Return @ 10%   10000   10000 Dividend @ 2%   2000   N.A. Capital Appreciation   8000   10000 DDT @ 14.163%   248   N.A. [email protected]%   906   1133 Net Realization   108846   108867

For Long-term investment in Liquid fund we can clearly see that the investors in the growth option would be better-off than the Dividend option.

This article was originally published on September 29, 2008.