I am switching from Franklin India Prima Fund Direct Plan Growth to Franklin India Prima Fund Direct Plan Dividend Payout Option after two years. I am not redeeming anything from the scheme. But the mutual fund is charging STT (Securities Transaction Tax) on this. What is that? The appreciation of growth scheme is Rs2,00,000. Will this switch attract LTCG (Long Term Capital Gain) tax?
Answer by Harshad Chetanwala, founder, MyWealthGrowth.com
A switch transaction is considered as redemption from one scheme or option or plan and purchase in another scheme or option or plan. In your case where you are switching from Growth to Dividend option, it will be considered as redemption from Growth and purchase in Dividend option. Hence, it will attract STT as well as Long Term Capital Gain Tax.
Dividends are taxable in the hands of investors, at slab rate. I would suggest you to continue with the growth plan and avoid these unnecessary transactions and taxation. Also, if you go ahead and switch right now, your time period for short term or long-term capital gain will be reset to the day you switched into the dividend option, even though the underlying portfolio in both growth and dividend option remained the same.
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