Tax benefits of investing in mutual funds

Published : 14 Feb 2023

Tax benefit of investing in equity mutual funds under Section 80C

Investors investing in Equity mutual funds can claim upto Rs. 1,50,00 as a deduction under Section 80C, although there is no upper limit for investing in these funds.

 Tax Exemption on Dividends

Some mutual funds come with a lock-in period feature before you can redeem them. However, the lock-in period is the least, upto 3 years, compared to other tax-saving financial instruments, such as PPF, FDs and National Saving schemes, etc., that require a lock-in period of upto 5 years minimum.

 Capital gains on selling mutual funds

A mutual fund is sold and purchased at its net asset value and the gains are divided and taxed according to short term capital gain and long term capital gain. If an investor sells his/her equity fund within one year, then the gains on the sale of the mutual fund will be taxed at 15 percent under Section 111A.

On the other hand, if the investor holds an equity fund for a period longer than one year, the gains on it are fully exempted from any tax. There is no cap on the maximum limit in both cases.

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