I am confused about the taxation of fund of funds. Could you please explain it.
Raman Ohri, Delhi
When it comes to tax treatment of fund of funds, which are mutual funds that invest in other mutual fund schemes, the approach is similar to how a debt fund is taxed. So, the redemption will qualify for long-term capital gains tax if your units in the fund are held for three years (36 months) or more. The long-term capital gains tax will be 20 per cent with the inflation indexation benefit. However, if your investments are redeemed before three years, then short-term gains will be taxed as per your applicable Income Tax slab.
