Investment in mutual funds and its taxability

You can think of a mutual fund as a trust that brings together a group of people and invests their money in stocks, bonds, and other securities who share a common financial goal. Each investor owns shares, which represent a portion of the holdings of the fund.

Investors can buy Mutual :

  • By contacting fund companies directly (no load).
  • through brokers, banks, financial planners, or insurance agents, or
  • through a third party, you may pay a sales charge (load)

BUT WAIT, before acquiring shares in any fund, you need to think about why you are investing, “YOUR GOAL” long-term capital gains desired, or is a current income preferred.

For short-term goals- money market funds may be the right choice, and for long-term goals-stocks funds may be the way to go.

Lock-in period

The lock-in period in mutual funds differs from scheme to scheme. Usually Debt funds have a lock-in period. Equity funds don’t have a lock-in period

Tax benefits for investing in mutual fund units

  • Dividend income from mutual fund units will be exempt from income tax with effect from July 1, 1999.
  • Investors can get rebate from tax under section 80C of Income Tax Act, 1961 by investing in Equity Linked Saving Schemes of mutual funds.
  • Further benefits are also available under section 54EA and 54EB with regard to relief from long term capital gains tax in certain specified schemes.
  • There is no taxability of the Principal amount on Mutual Fund at the time of withdrawal.
  • If Mutual fund unit holding period more than one year and you have paid STT than it will be LTCG tax free. Or if you sell before one year than it will attract STCG.

Some other benefits other than Tax benefits for investing in mutual fund units

  • Professional Management of your money. A mutual fund is a relatively inexpensive way for a small investor to get a full-time manager to make and monitor investments.
  • By owning shares in a mutual fund instead of owning individual stocks or bonds, your risk is spread out and loss is minimized.
  • Mutual fund buys and sells large amounts of securities at a time, its transaction costs are lower than what an individual would pay for securities transactions.
  • Can be converted into cash at any time.
  • Investment in it is easy and the minimum investment is small.

But the investments in these funds carry disadvantages and risk too. The biggest problems with mutual funds are their costs and fees and Mutual fund ads can be very deceiving.

Different funds have different risk profile but anyway, as mutual funds have access to services of expert fund are managers, they always safer than direct investment in the stock markets.

Timely and efficient tax planning go long way in lowering your total taxes by employing and taking advantages of in-built provisions of tax exemptions, deductions, concessions, rebates, relief’s, allowances and other benefits granted by the tax laws so that the incidence of tax is reduced.

We at have the expertise to guide you in lowering your tax outgo and thus enhancing your total take away.  We at provide full year support solving all your tax issues, in addition to filing of your return of income with excellent tax planning.

Please join us now in pursuit of simplifying individual taxation!

Alok Patnia

Founder and Director at

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