As we all know with the boom in the Indian Stock Market, Mutual fund is the most hottest investment option in the market. It is not only tax efficient instruments but also helps in earning a good return on our investments.

Type of Mutual Fund

Equity oriented Mutual Funds – A scheme that predominantly invests over 65% of its portfolio in equity shares of domestic companies is called an equity-oriented mutual fund scheme.

Debt Mutual funds are those MFs whose investment in Debt funds is more than 65%.

Type of Return in Mutual Fund

Mutual fund offers returns in two forms; Dividends and Capital Gain. Dividend is a distribution of profit by companies and investor receives dividend in proportion to their shareholding. Capital gains are the profit from the sale of units of MF. Capital gain realized due to the appreciation in the NAV of Mutual fund units.

Tax Rate and Period of Holding

What is indexation 

Indexation is a process to adjust the purchase price in relation of inflation over the years. Let’s understand this by simple example-

E.g. If Mr. A purchased 10 shares @1500 on 10.06.2018 and sold on 01.09.2020 @ 2000. In this case, the capital asset is Long term therefore it would be termed as Long term capital Asset and taxed @ 20% with the indexation benefit.

Indexed cost of Acquisition shall be = ((15000* Cost of Inflation Index {CII} for the year of sale)/CII for the year of Acquisition**)

** Issued by Income Tax Department