Since long term capital gain tax on equity funds is nil, will this be applicable for SIP?Asked
A Systematic Investment Plan (SIP) is a hassle free mode of investing in mutual funds. A SIP allows the investor to put in a certain amount of money at regular intervals, weekly, monthly or quarterly. SIP works on the simple principle of investing regularly and building wealth. Through SIP your money is directly debited from your bank account and invested in mutual fund schemes. The investor is allocated certain number of units based on the current Net Asset Value of the scheme.
In case of equity funds, only units held for more than one year are applicable for long term capital gains. However, tax will be charged on the sip withdrawn prior to one year.
In case of non-equity funds, units held than more than three years are applicable for earning long term capital gains. So, the investment needs to be held for a minimum of three years to earn long term capital gains. Just like equity funds, tax will be charged in this case as well on sips withdrawn before the completion of three years.
There is a tax of 15 percent on short term capital gains from equity funds, and zero on long term capital gains from equity funds. The tax rate is as per the investor's income tax bracket in case of short term capital gains earned from non-equity investment and 20 percent with indexation on long term capital gains.