Do you have to pay tax when fund managers sell stocks in a fund?

There are various reasons why a fund manager buys or sells stocks in the fund. For instance, mutual funds have to stick to their investing mandate such as asset allocation. So, a sectoral or thematic fund has to maintain at least 80 per cent allocation in a particular sector. Likewise, an aggressive hybrid fund needs to maintain a 65 to 80 per cent allocation in equity and the rest in debt. Thus, due to market fluctuations, if the fund breaches the defined exposures, the fund manager can indulge in some buying or selling to rebalance. Also, it may so happen that the fund manager loses conviction on a particular stock or wishes to reduce its exposure in case the stock has shot up dramatically which leads to some sell-off.

This article was originally published on August 09, 2022.