The Tax You Pay For Your Balanced Fund Investments

  Author: Sanjay Sharma

There are many investors who like balanced funds that are offered by mutual funds. They not only provide the growth from equity investments but also help tap the opportunities that arise from debt investments. Given this nature of taking advantage in both equity and debt markets, they are also known as hybrid funds. But how are the investments in this category of hybrid mutual funds taxed under income tax laws? Here is a brief primer. 

Amount of equity investments holds the key How your balanced fund investments will be taxed will depend on the portion of equity in investments made by the fund. If equity investments constitute 65% or more of the mutual fund, the balanced fund is taxed like an equity fund. If it is less than 65%, it is considered as a debt mutual fund and taxed accordingly.

It is important for balanced fund investors to remember that if their balanced fund composition has the same tax classification as that of debt funds, you need to stay invested for more than three years to qualify for the concessional rate of taxation of 20% and inflation indexation benefits (which effectively reduces the taxable capital gains). In case, you sell the units before completing three years of holding them, the entire amount is added to the regular income and taxed as per your tax slab.