Tax implications of switching schemes

Summary: Ever wondered if switching mutual funds in the same fund house comes with a tax surprise? Let's break it down simply; you might be in for a capital gains bill even if the money stays put.

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, they are obligated to pay capital gains tax.

There are two ways an investor can switch schemes. One way is to redeem the units and invest the proceeds in another fund, and the other is to request that the fund house 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 a redemption as we are exiting the original investment. The tax amount depends on the type of fund – whether it was an equity or non-equity fund under the old scheme.​

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 12.5 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 20 per cent.​

In the case of a non-equity fund (debt 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.

Suggested watch: When should I change mutual fund schemes?

This article was originally published on June 10, 2022, and last updated on February 23, 2026.