Switch mutual fund: Tax implications on switching mutual fund schemes | Value Research Capital gains tax on switching mutual fund schemes: Are you liable to pay taxes if you switch from one mutual fund scheme to another of the same fund house? Let’s find out.
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Tax implications on switching schemes

Are you liable to pay taxes if you switch from one mutual fund scheme to another of the same fund house?

If the investor wants to switch schemes, he is obligated to pay capital gains tax. There are two ways an investor can switch schemes. One way is by redeeming units themselves and then investing the amount in another fund, and the other is by requesting the fund house to switch schemes.

Even if the new scheme is from the same fund house, the investor has to pay the capital gains tax. Switching funds is considered as redemption as we are exiting the original investment. The tax amount depends on the type of fund - if the old scheme was an equity fund or a non-equity fund.

An equity fund, if held for more than one year qualifies for long-term capital gains. If investors' gain is more than Rs 1 lakh, they have to pay 10 per cent as tax. If the holding period is a year or less, then the gains are termed as short-term capital gains and are taxed at the rate of 15 per cent.

In case of a non-equity fund, if the holding period is less than three years, the gains are termed as short-term capital gains. They are added to the income and taxed as per the investor's income slab. If the holding period is more than three years, it is counted as a long-term capital gain and is taxable at 20 per cent after indexation.

Suggested watch: When should I change mutual fund schemes?


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