Do mutual funds deduct tax on dividend income or capital gains? Your queries answered

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January 2, 2020 1:41 AM

Most science fiction is not predictive. Yet it can still be a guide to the future

mutual Funds, mutual Funds deduct tax, dividend income, capital gains, money maturity, SEBI, global mutual funds, income tax return filingFor dividend income, tax is deducted by the mutual fund and the proceeds in the hands of investors are tax-free.

l Do mutual funds deduct TDS before giving the money maturity to investors?
– B S Bisht

For capital gains, no tax is deducted at source by the mutual funds (except for NRI investors) and the investor is liable for paying any taxes, if applicable. For dividend income, tax is deducted by the mutual fund and the proceeds in the hands of investors are tax-free.

l Should a resident Indian investor while filing his ITR declare his holding in SEBI registered Global Equity Mutal funds as a ‘Foreign Asset’?
—A Venkat

No, units of global mutual funds held by persons domiciled in India are not required to be disclosed as ‘Foreign Asset’ in income tax return filing.

l Is it a good time to invest lumpsum in a fund? Please advise.
—Rajesh Singh

Lumpsum investments are best suited for equity markets that are trading significantly below their long term fair valuations. Most investors find it difficult to make that assessment effectively. In case of volatile markets, SIPs are best suited to benefit investors due to the benefits of rupee-cost averaging that they offer. If the market rallies, the NAV increases, and investor gets fewer units for each subsequent SIP purchase instalment. The reverse happens when the market corrects, more units are obtained for the same amount. When you accumulate units in a correction phase, you are getting more units while prices are down resulting in lowering your average purchase cost and results in wholesome gains when markets recover.

l How can I withdraw some money from equity mutual fund which I invest every month through SIP?
—DS Kapil

For withdrawing your invested corpus, you can either place an online redemption request (via the AMC website or aggregator portals such as MFU online, PayTM, etc.) or submit a physical form at the respective AMC’s investor service centre or any of the Registrar & Transfer agent’s acceptance centres. You may withdraw a lumpsum amount or register for a systematic withdrawal plan (SWP) which facilitates automatic withdrawal at regular intervals . Be sure that the units being redeemed are not under the exit load period. Funds have minimum withdrawal amount as specified in their disclosure documents. Your SIP can continue.

The writer is director, Investment Advisory, Morningstar Investment Adviser (India). Send your queries to

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