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What are the tax implications while switching from one scheme to another under the same fund house?

Ashutosh Gupta sheds light on capital gains tax rules when switching between mutual fund schemes in the same fund house

When you switch from one scheme to another under the same fund house, are there any tax implications, since the investor doesn't receive anything in hand?
- Sidhwartha Roy Choudhary

Well yes, if you switch out of a fund and reinvest in another fund of the same fund house, the same capital gains tax rules are applicable as are in case of a redemption. Not only that, if you were to switch your investments between the regular and the direct plan of the same fund, even then the same capital gains tax laws are applicable. So you need to be mindful of that while planning your switch.

But you made an interesting point about the money not coming into your hand, so why the capital gains tax applicability. While the rules right now are like that, we also have a tax sheltered account on our wish list for a long time, where as long as the money remains within that umbrella account, an investor need not pay any capital gains tax on any switches from one fund to another or within that account. Those investments may even be in stocks with somewhat similar flexibility one has in the NPS Tier-I account where one can switch between the plan sponsors. There is a fair degree of flexibility available there for an investor to switch from one plan sponsor to the other without invoking any tax liability. But thus far, there is no such account or no such provision available in the case of mutual funds. But we'd love to see such a tax sheltered account being introduced in India at some point in time.

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