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  • Category: Mutual Funds

    How taxation on balanced mutual funds work?

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    I want to invest in balanced or hybrid mutual funds. I know that I don't need to pay any tax on long term capital gains and pay 15 percent tax on short term capital gains for equity mutual funds, but what about balanced mutual funds. How much do I need to pay tax on balanced mutual funds if I accrue some short or long term capital gains? How taxation of hybrid mutual funds work?
  • Answers

    3 Answers found.
  • Balance funds are those funds which invest money in equity as well as debt and other instruments. This they have to specify in their prospectus at the time of issue of fund in the market (new fund offer) and follow it in their investments.

    If a balanced fund is designed to invest only up to 65% or less in equity and rest in others then it will be taxed as - short term gain ( less than 1year or 1 year) are added to individual MF unit holders income for the year and long term gain (more than 1 year) are taxed at a flat rate of 10% without indexation benefit.

    If balance fund is designed to invest more than 65% in equity and rest in debt etc then it will be taxed as - short term gains are taxed at flat 15% and long term gains are tax free.

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  • Balanced mutual funds have both equity, debt and other components into it. So basically the taxation is going to be on thee equity component. In such case you get the advice for the taxation per fund basis from the fund house. And they do release the taxation related document, which your accountant can use for filing taxes. Depending on how much allocation your balanced fund has you can decide how much taxes can be applied. You can decide how much can be filed for income tax.

  • There are basically two types of hybrid funds. One is equity-based hybrid funds. These funds are also called balanced funds. The oar.
    ther one is debt-oriented hybrid funds. These funds are also called MIP funds.

    So far as balanced funds are concerned, as the equity holding of these funds is 65% or more, for taxation purpose, these funds are treated as equity or equity mutual funds. This means that a unit-holder in balanced funds don't have to pay any tax if he/she sells the units after one year.

    In case of MIP funds, these are treated as debt funds for taxation purpose. This means that an investor in MIP fund would get indexation benefit if he/she holds the unit for three years or more.

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