Saving long term capital gain tax on debt funds

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You are tired of the stock markets. One day they are Up…the next day they fall down. You just don’t know what to do. You don’t want to look at the stock markets anymore. You just want your money to be safe. That is when you decide to invest in debt funds. But there is a problem. You don’t know much about taxation of these debt funds.

What are debt funds?

Debt funds typically invest in fixed income securities. A fixed income security gives you periodic payments on the money you invest. On maturity of the debt fund the principal (money you invest ) is returned.

These are the types of debt funds

  • Debt mutual fund
  • Liquid fund
  • Gold Exchange traded fund
  • Fixed maturity plan (FMP)
  • Monthly income plan (MIP)

What is capital gain on debt funds?

If you buy A debt fund And sell it for a profit your gains are called capital gains.

So what is indexation?

Prices of goods such as fruits, vegetables, meat, services such as transport, houses, garments and so on increase with time. This is inflation. Indexation basically means you take the effects of inflation into consideration while calculating tax on your capital gains.

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