Consolidation of Mutual Funds not to be regarded as transfer

Mutual Fund is a fund which different persons invests and purchase units.

Such person who invest are called Unit holders

Some of these funds are equity oriented fund(65% or more investment is in mutual funds)

While others are funds other than equity oriented funds

There are Various schemes of mutual funds,most of which are similar to each other.

Securities and Exchange Board of India (SEBI) has been encouraging mutual funds to consolidate its various schemes having similar features.

 -ea-

 

Taxability in case of Consolidation

1. Consolidation of Units not to be regarded as transfer and hence no capital gain will be computed on it.
2. On subsequent sale of such consolidated units,

Period of Holding shall be calculated from date of purchase of Original Units

Cost of Acquisition wil be cost of acquisition of original units

 

 

This is subject to condition that

the consolidation takes place of

two or more schemes of equity oriented fund

or

two or more schemes of a fund other than equity oriented fund.

In case,consolidation is made of equity oriented fund with other fund,then transaction will be regarded as transfer

 

 

Example

Suppose a person hold mutual fund A (10000 units of 10 each) i.e. Rs 100000 on 10 April 2015

His mutual fund is consolidated and he is instead issued units of mutual fund B (5000 units of 24 each) on 15 May 2015

Later he sells such 5000 units of B @ 26 each on 17 Nov 2015

How will Capital gain be calculated

-a-

There are 2 transactions

1. Conversion of units of Mutual Fund A into Mutual Fund B-

This will not be regarded as transfer

2. Sale of units of Mutual Fund B

  This will be regarded as transfer and Capital Gain will be calculated

 

Period of Holding shall be from 10 April 2015 to 17 Nov 2015 i.e lass than 1 year

 

Full Value of Consideration=5000*26=130000

Cost of Acquisition=Cost of Acquisition of Original Units=100000*10=100000

Capital Gain =130000-100000=30000

 

 

Assumption:-  

We have assumed that both A and B are similar type of funds

(Both are equity oriented funds or both are other than equity oriented funds)

 

 

Q2

Solve last question assuming both A and B are different types of funds

-a-

There are 2 transactions

1. Conversion of units of Mutual Fund A into Mutual Fund B-

This will not be regarded as transfer

2. Sale of units of Mutual Fund B

In this case,both transactions will be regarded as transfer and Capital Gain will be computed on both

 

 

Conversion of units of Mutual Fund A into Mutual Fund B-

Type of Transaction	Conversion of units of  Mutual Fund A into Mutual Fund B	Sale of units of Mutual Fund B
FVC	120000 (5000*24)	130000 (5000*26)
Less
COA	100000	120000
Short term Capital Gains	20000	10000
Period of holding	10 April to 15 May	16 May to 17 November