Is LTCG tax stopping you from going 'direct'?

Subhash, a 48-year-old engineer, juggles his time between India and the Middle East. Over the last two decades, he has invested across various mutual fund schemes. While a portion of his wealth lies in 'direct' plans of mutual funds, where he started investing around 4-5 years ago, a sizable chunk (Rs 74 lakh) remains in 'regular' plans. That is because 'direct' funds only came in existence 10 years back. Subhash now finds himself in a limbo. Although he is aware that direct plans can accumulate a larger corpus than regular plans due to their lower expense fees, Subhash is hesitant to move his money to the former. The reason being 'long-term capital gains tax', simply known as LTCG tax. He fears that he'll have to pay a hefty tax for selling his regular mutual fund plans and redeploying the money to the direct plans of mutual funds. LTCG: A brief background The budget in 2018 reintroduced an LTCG tax of 10 per cent on realised gains from equity investments held for more than a year. This only applies to gains exceeding Rs 1 lakh in a financial year. However, gains earned on equity investments until January 2018 are tax-exempt. In technical terms, they are grandfathered. This should bring a smile to Subhash's face, as it will help him red

This article was originally published on June 15, 2024.