The change from the growth option to the dividend option is taxable
I am switching from the Franklin India Prima Fund Direct Growth Plan to the Franklin India Prima Fund Direct Plan Dividend Option after two years. I am not buying anything back from the plan. But the mutual fund charges the STT (Tax on securities transactions) on this point. What is that? The appreciation of the growth regime is Rs 2.00,000. Will this change attract the LTCG (Long Term Capital Gain) tax?
Response from Harshad Chetanwala, Founder of MyWealthGrowth.com
A conversion transaction is considered to be a redemption of one plan or option or plan and a purchase in another plan or option or plan. In your event that you switch from the Growth option to the Dividend option, this will be considered a surrender of the Growth option and a purchase of the Dividend option. Hence, it will attract TWU as well as long term capital gains tax.
Dividends are taxable in the hands of investors, at the slab rate. I suggest you continue with the growth plan and avoid these unnecessary transactions and taxes. Also, if you go ahead and change now, your short or long term capital gain period will reset to the day you switched to the dividend option, even if the underlying portfolio in the The growth option and the dividend option remained the same. .
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