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What are the tax implications of withdrawals from mutual funds?

By Finserv MARKETS - Aug 1,2019
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What are the tax implications of withdrawals from mutual funds

We invest in the best mutual funds to earn more money from them in forms of capital gains, dividends, and interests. And where there is a salary or any income, there is an income tax which comes with it. The tax you have to pay on capital gains to a great extent relies upon the time for which you remain invested in the individual plans, also the holding period of mutual assets. Before we get into more details into the tax rules of the best mutual funds, let’s try to understand what holding periods are.

Holding period for long term

The holding period for top-rated mutual funds and best mutual funds can be short or long. When it comes to balanced mutual funds and equity mutual fund, a holding period of a year or more is viewed as a long term holding period. In this way, long term capital increases tax. For debt funds, a holding period of three years or more is viewed as a long term holding period.

Holding period for short term

A holding period which lasts for under three years for debt funds and under a year in case of balanced and equity funds is characterised as a short term holding period. In this way, short term gains on the capital produced using any plan held for under three years attract short term capital gains. A few models for short term holding period schemes include the treasury bill, 91-day bonds, and so forth.

Taxation on mutual fund

Now that we have understood the holding period on mutual funds, here’s more on how they are taxed, and their tax-saving features.

Tax-Saving Equity Funds

Equity Linked Saving Scheme (ELSS) is one of the most effective tax-saving instruments that fall under Section 80C. They invest in equity shares of companies crosswise market capitalization.

ELSS concocts a lock-in period of 3 years which implies you can’t recover your units before the lapse of 3 years. After recovery, the long term capital gains (LTCG) up to Rs 1 lakh remain tax-free. LTCG, which is more than Rs 1 lakh, is taxable at the rate of 10% without the advantage of indexation.

Non-tax Saving equity funds

Long term capital gains (LTCG) on non-tax saving equity funds of value up to Rs 1 lakh remain tax-free. LTCG which crosses Rs 1 lakh is taxed at 10% without the advantage of indexation.

What are the tax implications of withdrawals from mutual funds

Balanced funds

Balanced funds are hybrid funds that are oriented around equity and invest 65% of their assets in equity shares. This is the reason their tax treatment is actually equivalent to non-tax saving value reserves.


A SIP is a plan to invest fixed amounts in top-rated mutual funds a periodic way. A SIP can be day by day, week by week, fortnightly, month to month, or even quarterly. As definite above, gains from SIPs are taxable depending on the holding period.

For example, let’s say that you have a SIP purchased on Finserv MARKETS of Rs 10,000 every month. The following year, if you choose to reclaim your aggregated investments and profits, then your earnings won’t be tax-free. Just the additions earned on the first SIP would be tax-free because just that investment would have finished one year.

Debt funds

Debt stores and long term capital gains attract a tax rate of 20% after indexation. Indexation is a strategy which is used for calculating the rate of inflation between the year when the debt funds were purchased and the year when you decided to sell them.

Securities Transaction Tax (STT)

Aside from all those above, there is something many refer to as the Securities Transaction Tax (STT). An STT at the value of 0.001% is imposed by the fund company when you sell units of a balanced fund or an equity fund. There is no STT on the clearance of debt fund units.


A mutual fund is a great way to get maximum returns on your investments. If you are looking to start investing in them, then the mutual funds on Finserv MARKETS should be your go-to destination. With a portfolio of expert investors, you can be safe that your mutual funds and the money that you have put in them is in safe hands. Besides, the elimination of intermediaries leaves room for even more profit.

The steps to begin investing in top-rated mutual funds are quite simple — choose your fund, provide the investment amount, complete your KYC, and then finish your payment.

Finserv MARKETS, from the house of Bajaj Finserv, is an exclusive online supermarket for all your personal and financial needs. We understand that every individual is different and thus when you plan to achieve your life goals or shop for the gadget of your dreams, we believe in helping you Make it Happen in a few simple clicks. Simple and fast loan application processes, seamless, hassle-free claim-settlements, no-cost EMIs, 4 hours product delivery and numerous other benefits. Loans, Insurance, Investment and an exclusive EMI store, all under one roof – anytime, anywhere!


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Bajaj Finserv Direct Limited ("BFDL") is primarily engaged in distribution of financial products and services through its digital platform (“Bajaj Finserv MARKETS”) and inter alia renders services of customer acquisition, providing preliminary credit support activities, fulfilment services and post-acquisition customer services to Banks, NBFCs, HFCs. BFDL is also a registered Corporate Agent (Composite) under valid IRDAI registration number: CA0551 valid till 10-Apr-2024 for solicitation and servicing of Insurance Products. Registered Office: Bajaj Auto Limited Complex, Mumbai – Pune Road, Akurdi, Pune – 411 035 CIN: U65923PN2014PLC150522