How Mutual Funds Are Taxed in India

Mutual fund tax in India depends on three things: what the scheme holds, how long you held your units, and your residency status. Tax is triggered only when you redeem or switch — not while you stay invested.

Equity-oriented funds

Schemes holding at least 65% in domestic listed equity. Units held 12 months or less produce short-term gains taxed at 20%. Held longer, gains are long-term, taxed at 12.5% on the amount above a ₹1.25 lakh exemption that applies across all your eligible long-term gains in a financial year.

Debt funds

For units purchased on or after 1 April 2023, gains are added to your income and taxed at your slab rate no matter how long you held them — the holding period is irrelevant and indexation no longer applies. Units bought before that date follow the older rules, where gains after 24 months were treated as long-term.

Gold and international funds

Treatment follows the underlying exposure rather than the label, and differs between listed ETFs and fund-of-funds structures. Listed gold ETFs held beyond 12 months are generally treated as long-term at 12.5% without indexation, with shorter holdings taxed at slab rate. Because this area has changed repeatedly, confirm the current position for the specific scheme.

Hybrid funds depend on the mix

A hybrid scheme is taxed on its actual equity and derivative allocation, not its category name. Aggressive hybrid and arbitrage funds usually qualify for equity treatment; conservative hybrid funds usually do not. Check the scheme document.

Two things to remember

• A switch between schemes — including regular to direct — is a redemption and is taxable.
• The CAGR figures on this site are net of the expense ratio but before any tax or exit load.

Tax rules change with each Union Budget, and your own position depends on your income and residency. Treat this as an orientation, not advice, and verify against current rules or a qualified adviser before acting.