Indexation — Mutual Fund Term Explained

Adjusts your purchase cost for inflation using the Cost Inflation Index, reducing taxable gains. No longer available for debt funds (post-April 2023).

Indexation adjusts your investment's purchase price to account for inflation using the government's Cost Inflation Index (CII), reducing taxable capital gains.

Before April 2023, debt fund investors could claim indexation on LTCG after 3 years. The government removed this benefit in the 2023 Finance Act.

Formula

Indexed Purchase Price = Purchase Price × (CII of Sale Year ÷ CII of Purchase Year)

Related terms

• LTCG (Long Term Capital Gains) — Tax on mutual fund gains after the qualifying period. For equity: 12.5% on gains above ₹1.25 lakh/year after 1 year. For debt: slab rate.
• Debt Fund — A mutual fund investing in fixed income securities — bonds, G-Secs, commercial paper. Lower risk than equity but also lower returns.

Browse the full mutual fund glossary, or see this concept in action in the fund screener.