Tax calculation for SIP in mutual funds

POSTED BY Ravi ON May 25, 2013 8:00 am COMMENTS (9)

Dear Friends,

We are aware that any interest earned on money invested in Equity MF for more than a year is tax-free. But how does it work in case of a SIP. In SIP money is invested every month. So, for example, if I start a SIP of 5000 p.m. in an Equity MF and redeem after one year, how does tax calculation work for money invested in 2nd month onwards because that has not completed one year.

Pls advise.

9 replies on this article “Tax calculation for SIP in mutual funds”

  1. Dear Ravi, only two things in this world are certain & nobody like them.

    Death & Taxes. 🙂 🙂

    Thanks

    Ashal

  2. Ravi says:

    Oh OK ! Got it ! Its Capital appreciation. Govt cannot let people enjoy appreciation of their hard-earned money. That is also taxable. 🙁

  3. Dear Ravi, Ok I got it. you ‘ll invest for long term (for you it’s 4-5Y, for me it’s more than 15Y 🙂 ). yes in this case, the last 11 months’ SIP ‘ll be taxable. Just to update you, you are not earning any interest from SIP investment in MFs. it’s capital appreciation that you are earning.

    Thanks

    Ashal

  4. Ravi says:

    No Sir, I am planning for a long time, around 4-5 years. But I guess, there would still be some amount that would earn some interest that would be taxable. As you said, the 11 SIPs before the day of redemption would earn taxable interest.

  5. Dear Ravi, are you really interested in redeeming after 1Y from your SIP?

    Thanks

    Ashal

  6. Ravi says:

    Dear Pattu,

    If you are reading this, do have a calculator for calculating the tax implication for SIP in mutual funds?

    Thanks !

  7. Ravi says:

    Thanks Sirs for your responses and clarification.

  8. Dear Ravi, each SIP in itself is a fresh investment on that very SIP date. So each individual SIP needs it’s own 1Y holding period to be eligible for tax free redemption.

    Thanks

    Ashal

  9. bemoneyaware says:

    In a normal lumpsum investment in Equity mutual funds 12 months are from date of investment.

    When it comes to the systematic investment plan 12 months needs to be calculated for each of the instalment.
    So if you invested in SIP in equity mutual fund on Jan 1 2012 it’s 12 month will be over in Jan 1 2013, but for installment in Feb 1 2012, 12 months will be over in Feb 1 2013.
    If you sell the entire investment say in Jan 15 2013, for the remaining 11 investments there is a lower time period that has passed(12 months are not over) so all the gains from this would be considered as a short term capital gains and there would have to be a 15 per cent tax

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