Can You Withdraw From MFs Without Losing To Taxes?
How Taxes Work
In simple terms: if you withdraw from your equity MF units after 12 months, you will not be taxed.
But if you withdraw from your debt funds before 3 years, the profit on the withdrawn units will be taxed at the rate for your income slab.
Equity is meant for long-term investing, at least 5-7 years. If you withdraw your money within a year of making the investment, the amount withdrawn will be taxed at flat 15%.
If you withdraw your equity MF units after 12 months, you will not be taxed.
Debt MFs are used for short-term needs, 1-5 years.
Withdraw after 3 years, and pay a tax rate of 20% after indexation.
If you withdraw from your debt funds before 3 years, the profit on the withdrawn units will be taxed at the rate for your income slab.
The period of holding is calculated separately for each month’s investment.
So, if you invest every month from January to December 2021, in January of 2021, 1/12th of your investment will be 1 year old, another 1/12th will be 11 months old and so on.
Capital gains tax can impact your gains significantly if you redeem your investment without considering the time frame.
If you invest in equity, hold for at least a year and in the case of debt, 3 years is ideal to minimise the tax hit.
Mutual Fund investments are subject to market risks, read all scheme related documents carefully.