Mutual Funds: Switching from progress to dividend choice is taxable

I’m switching from Franklin India Prima Fund Direct Plan Growth to Franklin India Prima Fund Direct Plan Dividend Payout Option after two years. I’m not redeeming something from the scheme. But the mutual fund is charging STT (Securities Transaction Tax) on this. What is that? The appreciation of progress scheme is Rs2,00,000. Will this change appeal to LTCG (Long Term Capital Gain) tax?

Name Withheld

Answer by Harshad Chetanwala, founder, MyWealthGrowth.com

A change transaction is taken into account as redemption from one scheme or choice or plan and buy in one other scheme or choice or plan. In your case the place you’re switching from Growth to Dividend choice, it will likely be thought-about as redemption from Growth and buy in Dividend choice. Hence, it can appeal to STT in addition to Long Term Capital Gain Tax.

Dividends are taxable within the fingers of traders, at slab fee. I’d counsel you to proceed with the expansion plan and keep away from these pointless transactions and taxation. Also, should you go forward and change proper now, your time interval for brief time period or long-term capital achieve might be reset to the day you switched into the dividend choice, despite the fact that the underlying portfolio in each progress and dividend choice remained the identical.

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