Are Mutual Fund Gains taxed at folio level?

Tax queries 141 views 1 replies

If I have investment in a liquid fund under a single folio number, every time I sell, FIFO is used to calculate gains and determine LTCG or STCG. If I have 10 lakhs to park for 3 months and if I add to the above fund and sell after 3 months, using FIFO I would be exiting the earliest purchased lot resulting in larger gains and more tax. If however, I invest the amount in the same liquid fund but under a different folio number, the holding period will be 3 months, price appreciation will be lower and accordingly lower tax. Is my understanding correct?

Thanks.

Replies (1)

Hey Jayesh, your understanding is mostly correct. Here’s a clear explanation:

  • Mutual fund gains are computed at the folio level (or at the PAN + scheme + folio combination). When you redeem units, the FIFO (First In First Out) method is applied within that folio to determine which units are sold first for capital gains calculation.

  • So, if you add Rs. 10 lakhs to the existing folio and redeem units after 3 months, the redemption will first consider the oldest units (bought before adding Rs. 10 lakhs). This could result in a higher gain because those older units might have a longer holding period and possibly a bigger appreciation, leading to different tax implications.

  • However, if you invest the Rs. 10 lakhs in the same fund but in a new/different folio number, the gains for that folio will be calculated separately. In that case, if you redeem after 3 months, the holding period for those units is just 3 months, potentially qualifying as short-term capital gains (STCG) with lower appreciation, which might reduce tax liability.

Key point:
Using multiple folios can sometimes be a tax planning tool to manage gains and holding periods, but it can also add complexity to tracking investments and tax reporting.


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