Applicability of capital gain

[Guest]

Whether switching to another find in mutual fund for a portfolio leads to transfer and to invite capital gain or loss even if no transaction takes place?

[CAGOPALJI AGRAWAL]

No,since for transfer, there must be two parties, transferer and transferee hence one can not transfer any asset to oneself.

[DEV KUMAR KOTHARI]

If a unit holder switches from X units to Y unit- there is exchnage involving two transactions - sale of X unit and purchase of Y unit. Therefore, computation of profit or loss or capital gain or loss has to be made for transfer of X unit. Consideration being agreed value of Y units acquired in exchnage of X. In case there is a conversion by MF, then matter can be different, in that case the cost of original units will become cost of new units and the period of holding will be reckoned from date of acquisition of old units.

[Guest]

Switching of fund scheme even within the Fund is also equal to transfer and would attract capital gains/loss provisions.

AI Summary

Capital gains on mutual fund switches may arise if switching is treated as sale and purchase rather than conversion carryover. Applicability of capital gain hinges on whether switching between mutual fund schemes is a transfer. Some treat switching as no transfer to oneself; others characterise it as sale of original units and purchase of new units, requiring computation of capital gain with the agreed value of new units as consideration. If the fund effects a conversion, original cost and holding period carry over to new units.