Taxability of earnings:
The tax treatment of this fund may vary depending upon its asset allocation. It will be taxed in the following manner based on its average asset allocation in the last 12 months.
- If the mutual fund units are sold after 1 year from the date of investment, gains upto Rs 1 lakh in a financial year are exempt from tax.
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Gains over Rs 1 lakh are taxed at the rate of 10%.
- If the mutual fund units are sold within 1 year from the date of investment, entire amount of gain is taxed at the rate of 15%.
- No tax is to be paid as long as you continue to hold the units.
- Dividends paid by the mutual fund scheme are taxed at the rate of 10% (effectively 11.648%, including surcharge and cess). This is known as Dividend Distribution Tax (DDT).
Though the investor does not pay this tax directly, it is deducted from the dividend income before passing on to the investor.