Taxation on Mutual Funds in India 2023: How are Mutual Funds Taxed?

Mutual funds offer you the chance to invest in diverse securities operated by professional money managers. You can also save tax on mutual funds if invested intelligently. For example, if you invest your money in a fixed deposit scheme, your interest income will be fully taxable. However, when you do so in mutual funds, tax liability arises only when you sell units of mutual funds.

Continue reading to learn about the various kinds of investment regimes and their respective taxation schemes to obtain tax benefits on mutual funds and make an informed decision.

Mutual Fund Tax Calculator

It is a simple tool that you can use for mutual fund tax calculation for a particular financial year. All you need to state is the principal investment amount, the nature of the mutual fund, and the time you stayed invested in order to calculate capital gains, which you can then use to calculate mutual fund taxation. You can explore Jupiter’s Mutual Fund Tax calculator here.

How can investment in Mutual Funds help you save on tax?

Following are the three main kinds of tax benefit mutual funds:

1. Investment in tax-saving mutual funds – You can invest in Equity Linked Savings Scheme (ELSS), wherein the principal amount you invest is deducted from your taxable income. As a result, your income tax on mutual funds is decreased up to a maximum of Rs. 1.5 lakh as per Section 80C. However, remember that you have to stay invested for at least three years.
2. Investment in Long-term Domestic Equity – You can also gain tax benefits on mutual funds if you hold your investment in a domestic equity-oriented period for more than a year. Such a gain is called long-term capital gain on a mutual funds and is exempted from taxes. However, the principal investment does not offer any tax benefit in this case.
3. Investment in long-term Debt Funds – You can avail of indexation tax benefits if you invest in long-term debt funds; that is, you hold your investment for a minimum of 3 years. But what is indexation? In simple words, this means that your gains would be adjusted using the cost inflation index. For example, suppose you made long-term capital gains of Rs. 20,000 after holding an investment for three years. In that case, you don’t pay tax on the entire amount but only on Rs. 15,555 after being adjusted for inflation, thereby reducing income tax on mutual funds.

What is a Mutual Fund?

A mutual fund is a financial tool operated by professional money managers wherein money from the fund’s investors is pooled and invested in diverse securities. Thus, it allows new and individual investors to make money from professionally-managed portfolios. You can participate in both gains and losses of the fund in proportion to your investment.

How do Mutual Funds Work? 

Mutual funds work by investing the pooled money from several investors into bonds, equity and other securities. As a result, you get immediate diversification in your investment and hence lower risk. 

Also, remember that since mutual funds work on shared investments, the fund’s profit and losses are also proportionately shared among the shareholders. 

Moreover, mutual funds offer you a range of options. You can either invest and make money in stock/equity, fixed-income/ bond, or balanced funds. Also, several sub-categories allow you to invest even more specifically. For example, you can invest in sector funds if you feel that a particular industry is poised for growth.

Importance of Mutual Funds While Investing

Mutual funds offer a great investment tool with the following key advantages:

1. Instant Diversification and Lower Risk: Mutual funds allow you to invest in multiple securities under professional supervision that safeguards you from market risk.
2. No Need for Big Investment: You don’t need a large sum of money to be able to invest in mutual funds as it is a collective investment. Thus, you can take advantage of a diversified portfolio even with a small principal. 
3. Professional Expertise: Another key advantage of mutual funds is that you don’t need to necessarily have knowledge of the market, industries, sectors and expertise in research. You can rely on professional fund managers’ experience to multiply your money.
4. Tax Benefit Mutual Fund: One notable benefit of mutual funds is their tax benefit, as explained in the previous sections.

Benefits of Using Jupiter Money’s Return on Investment Calculator

ROI, or return on investment, is the most common tool to evaluate and understand the profitability of an investment option to make an informed decision. For this purpose, you can easily use Jupiter Money’s ROI calculator. It is not only user-friendly but also offers you the following advantages:

1. Easy and accurate profitability measurement – The ROI calculator offers you a clear idea of the ratio between your investment and profit, thereby helping you decide whether you should invest in that particular product or not. 
2. Quick Comparison – You can use our calculator to compare ROIs for different investment tools and evaluate the cost of investment and profit to make the right decision. Moreover, it removes any possibility of mathematical errors associated with manual calculations.
3. Simple to use – The calculator is very user-friendly. All you need to provide are the investment cost and probable returns.

Conclusion

Mutual funds offer a safer and diversified investment option managed by professionals. Additionally, unlike other investment schemes, such as fixed deposits, they offer great tax benefits, wherein all your interest income is taxed. You can avail of a tax deduction if invested in ELSS as per section 80C, tax exemption on long-term capital gains and also take advantage of indexation when invested long-term in debt funds. 

FAQs

How can I obtain my consolidated mutual fund statement?

You can submit a form to CAMS to obtain the consolidated mutual fund statement. You can also write to us at investments@jupiter.money if you do not find the CAMS email in your inbox.

What is ELSS?

ELSS or Equity Linked Savings Scheme is a kind of tax benefit mutual fund. It is the only mutual fund eligible for tax deduction under Section 80C.

Where can I find Jupiter Money’s Portfolio Analyser?

You can visit our Portfolio Analyser webpage to understand and evaluate your investment options

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Written and Reviewed by:

Priyanka Rao

Author

Priyanka Rao is a content strategist for Jupiter.Money, and specializes in writing on topics related to finance, banking, budgeting, salary & wages, and other financial matters. She has a passion for creating engaging content that resonates with audiences across various digital platforms. In her free time, Priyanka enjoys traveling and reading, which allows her to gain new perspectives and inspiration for her work. With a keen eye for detail and a creative mindset, Priyanka is committed to creating content that connects well with her readers, enhancing their digital experiences.

Vivek Agarwal

Financial Content Reviewer

Vivek Agarwal is a dynamic leader with deep expertise in investment platforms and wealth management. At Jupiter Money, he spearheaded the Investments vertical, building in-house solutions for direct mutual funds, digital gold, and fixed deposits, scaling the platform to over 200,000 customers. He was an early adopter of SEBI’s Execution-Only Platform (Category 1) and managed key operational, compliance, and customer service functions.

Previously, Vivek co-founded Upwardly, a robo-advisory wealth management platform offering tailored investment and insurance solutions. As Chief Investment Officer, he pioneered dynamic asset allocation, goal-based investments, and motif-based portfolios. After Upwardly's merger with Scripbox, he led the integration of independent financial advisors into Scripbox, transitioning assets under management and customer relationships seamlessly.

His strategic leadership extended to setting up corporate treasury services for startups and MSMEs, and establishing verticals in insurance and bond sales, including Sovereign Gold Bonds. Vivek’s diverse experience and strategic vision continue to shape the financial services landscape in India.