Capital Gains on Mutual Funds explained

A capital gain is the profit when you redeem units for more than you paid. Whether it's "short-term" or "long-term" depends on the fund type and how long you held it.

• Equity funds: long-term after 1 year; debt funds are taxed at slab regardless of period.
• SIPs use FIFO: the oldest units are sold first, and each instalment's holding period is counted separately.
• Gains are only realised — and taxed — when you redeem, not while invested.

Knowing this helps you time redemptions to cross the 1-year mark and use the ₹1.25L equity exemption.

→ Read more in how mutual funds are taxed.