Equity Fund Tax Rules – STCG, LTCG Explained

Introduction

Equity mutual funds can deliver great returns over time — but don’t forget the tax bite. Whether you redeem your investments after 6 months or 3 years, the tax treatment can significantly impact your net returns. That’s why it’s crucial to understand the difference between Short-Term Capital Gains (STCG) and Long-Term Capital Gains (LTCG) in equity funds.

STCG vs. LTCG in Equity Funds

To qualify as an equity fund, at least 65% of the portfolio must be invested in Indian equities.

Real-Life Example: Tarun’s Equity Redemption Tarun invested ₹2,00,000 in a Flexi Cap Fund in April 2022 and sold it in May 2023 for ₹2,50,000.

• Holding Period: 13 months → LTCG
• Gain: ₹50,000
• Tax: Since gains < ₹1,00,000 in a financial year → Zero tax

• Stay invested for 12+ months to get LTCG benefit
• Use the ₹1L annual exemption each year by redeeming smartly
• SIP redemptions are taxed FIFO (first-in, first-out)

Knowing tax rules helps you retain more of your returns. With basic planning, you can save thousands and make better exit decisions.

Talk to your advisor before redeeming — a few weeks of patience could reduce your tax bill substantially.

Summary Table: Equity Fund Taxation