Mutual Funds don't Pay Taxes

Recently, I came across an article which mentioned that if a mutual fund buys and sells stocks with in a year, it does not have to pay short-term capital gain tax. Whereas an individual will be taxed for the same. Could you kindly tell if that is true and why?
- Sandeep

This is true. Mutual funds are not liable to pay capital gains or other taxes on their own transactions in securities because they are treated as pass-through entities for the purpose of taxation. They get this favourable tax treatment because the income from their stock trading operations does not really accrue to them and is passed on fully to their investors (except for the AMC fee they charge).

This article was originally published on April 02, 2015.