What is Indexation | How can you reduce tax by indexation | How are debt funds taxed

Indexation helps you save tax on the long-term capital gains of debt funds.
In this video, we shall understand the concept of indexation, what it is? how does it work? and most importantly, how can one use indexation to reduce taxes?
Topics Covered:
00:00 Introduction
01:47 What is Indexation
03:50 How does it work?
09:00 Summary
#Indexation #DebtMutualFunds #ETMONEY​
👉 To invest in Direct Plans of top Mutual Funds for free, download the ETMONEY app: etmoney.onelink.me/unJQ/5ca1a...
👉Read more such informative articles at www.etmoney.com/blog​
👉 Follow us on:
► Facebook: / etmoney
► Twitter: / etmoney
► Instagram: / etmoney_official
► LinkedIn: / et_money

[@sandeeppai86]

This is the most crystal clear explanation on mutual fund indexation I have come across🙌🏼

[@ETMONEY]

Thanks for your appreciation

[@rajm8682]

@@ETMONEY how 3yrs are calculated? Exactly 3yrs or 36 months?

[@sachind2188]

Long term and short term gain is interchange while explaining

[@ChandraAluru]

There is a mistake

[@iamdeb4u]

Yes.. they got confused between the signs < & > 😀 होता है कभी कभी..

[@rishabhdubey374]

How are they interchangeable? There's isn't any indexation on short term capital gains.

[@MellowMelodiesGoa]

the flow diagram has the > and < sign in wrong columns. thanks for explanation.

[@subodhuniyal]

Thank you for this information! Do we get the indexation benefits automatically after 3 years for debt mutual funds ? Or is there anything we need to do during redemption ?

[@indrajeet1316]

This is exactly the video I was waiting for.....thank you so much ET money team.

[@ETMONEY]

Our pleasure! Thanks

[@anustupchakrabarti2983]

Nice explanation. What happens in case of SIPs in MFs? Here how do we calculate the initial amount invested?

[@rk593415]

So many videos on mutual funds. But none of them explained about Indexation. THANK YOU 🙏 ET Money for sharing valuable information with tax saving trick. Kindly keep on posting value adding information.

[@ETMONEY]

Most welcome. Glad you liked it

[@girish.r]

Perfectly explained, thank you 🙏

[@ETMONEY]

You're very welcome!

[@ganeshkumaarr1325]

This is helpful to correct my understanding on indexation. Thanks a lot and keep up the good work of educating common people.

[@ETMONEY]

Thanks

[@mugundhans400]

Sir, I don't find more words to praise , the content and presentation was amazing and appreciate it 👍👍 Thanks a lot for sharing 👍👍

[@ETMONEY]

Thanks a ton

[@KalpeshFulpagare]

Another unique topic, explained very well. Well Done!

[@ETMONEY]

Thanks for watching

[@amlanb1]

very useful for debt mutual fund investors

[@neelsmoon]

Informative and useful sir

[@WeddingStoriesByRakesh]

Is there an article or video on saving taxes (ltcg) on sale of physical gold?

[@rahulsaldanha9111]

Now this concept is Easy Peezy, thank you ETMONEY

[@ETMONEY]

Most welcome

[@prakashraghunathan2685]

Thank you for the very good insight sir!

[@ETMONEY]

Thanks Prakash Raghunathan

[@deeppatel7188]

Sir please make a video on tax when you switch from debt to equity mutual fund via STP so you pay tax according to debt or equity? Thank you

[@ashishbaranwalechannel4843]

Awesome

[@sumalsurendranath4727]

Superb video. Deeply grateful for outstanding content ET money uploads.

[@ETMONEY]

Thanks a ton for your kind words

[@aayushsinghal589]

The < and > signs in the first slide for the holding periods for the STCG and the LTCG are incorrect; they need to be reversed according to the verbal explanation. How did this blunder slip into the video and went unnoticed for two years without any viewer having pointed it out to you?

[@ganeshrajan8260]

Wonderful explanation.Explaining formula with it's practical application .Very useful for non financial person like me.keep it up.

[@ETMONEY]

Most welcome. Thank you for the appreciation

[@pr8794]

What a Wondeful video on Indexation and Taxation for Debt Mutual Funds.. Thank you for such a clear presentation. Looking forward to Equity MF / Stock's Tax details..

[@ETMONEY]

Glad it was helpful!

[@santhisidharthan5580]

Clear explanation...

[@rvarma83]

Extremely enlightening!! 👍🙏👏

[@ETMONEY]

Thank you Ramya Verma

[@mallik3141]

Pls make video on best debt mutual funds which offers lower risk & safe during bull run period.

[@thecrypticmystic28]

Great explanation, the selection of topics was very impressive. 💯✅

[@ETMONEY]

Glad to hear that! Thanks

[@NitishKumarPatra]

I wasn't aware of this.. thank you sir. 🙂

[@ETMONEY]

Most welcome.

[@klokesh5959]

Wonderful video…. Thanks 🙏

[@ETMONEY]

Glad you enjoyed it

[@rohitxess1955]

Thank you for putting up in the simplest form Subbed :)

[@ETMONEY]

Welcome!

[@9176903103]

Good understanding about the indexation, Sir , could you please make a video for different formulas used for calculating mutual funds metrics like alpha, beta, standard deviation, Sharpe ratio, capture ratio, expense ratio.. etc.. also eager to know, where one can find those formulas 👍

[@ETMONEY]

Thank you. We have already made that video, please watch our video on "6 Ways to Measure Mutual Fund Risk". We have discussed alpha, beta, Sharpe ratio, standard deviation, R-squared and sortino ratio.

[@ayushvarma9657]

Greater video Shankar!

[@sreekumar9566]

Very good information... Thank you Mr.Shankar..

[@ETMONEY]

Most welcome, Sree Kumar. Glad you found it useful.

[@RoshanShanbhag]

This is very highly useful information. Thanks for creating videos like these.

[@ETMONEY]

So nice of you. Glad you found the content useful. Thx!

[@therealshruthi7985]

😓

[@poragdyutidas8915]

The best Video on Indexation.

[@ETMONEY]

Thank you

[@prashantsoneji]

Thank you sir. Your explanations are amazing. Sir It would be my privilege if I could work under your team. You are truly my inspiration sir

[@ETMONEY]

You are most welcome. Thank you for the warm words

[@prashantsoneji]

@@ETMONEY My pleasure Sir

[@nar6014]

Hi, is it an old video. Because your own ET Money website says, short term capital gains are those, when the gains are received within an year and not three years. Please clarify.

[@vinodrathod6180]

Thanks , really informative video

[@ETMONEY]

Glad it was helpful!

[@DensonGeorge18]

For Foreign Equity, there is indexation benefits after 2 years.. For debt, indexation benefits after 3 years and local equity, no indexation benefits. I think, this covers it?

[@rkaggarwal3423]

Dear Sir, Excellent video.God bless u for imparting such useful inf. I'm always waiting for your new video. Sir pl prepare video on FMP .Explain with example. How is HDFC 1204 Days FMP opened on 15 th Dec22?What is to be seen before buying. What is the YTM/ indicative tied if we hold for 1204 days. What is double indexation. How to know in advance the tax liability if we hold it for 3 year ie upto April26 ,as CII of preceding year is not known. Why it is written that HIGH INTEREST RATE RISK in this scheme. Further what is the benchmark yield and where it can be seen? If FMPS are listed on NSE/ NSE ,how to see? I shall be grateful if u clarify. Regds Sr Citizen

[@theindian5817]

Can you please show a video with comparison of return from fd and debt fund, utilising indexation benefits.

[@ETMONEY]

Sure, we have detailed that in a blog post on the ETMONEY website. Please visit www.etmoney.com/blog/indexation-what-is-it-and-how-it-helps-you-save-taxes-on-mutual-fund-returns/

[@krishnamohanr4929]

Brilliantly explained

[@ETMONEY]

Thank you very much

[@centrelibrary2342]

Indexation is applicable to debt funds only or also applicable to equity funds?

[@raghunath44]

Excellent.

[@ETMONEY]

Many thanks!

[@mk-su9bm]

Very useful sir

[@ETMONEY]

Thanks!

[@Kalaiarasan_Balu]

Ur content is always great

[@ETMONEY]

Thanks

[@hk_build]

@0.55 Please correct graph representation for holding period greater then should be long term gain not short term???

[@shuvampargal4754]

people ideally shouldn't invest in market without subscribing this channel...always unique plus very imp topics

[@ETMONEY]

Thank you for the vote of confidence, Shuvam Pargal. Pls do inform your friends and family members, we're sure they'll find a lot of utility in our channel.

[@commontoall2864]

International fund is also consider as debt fund, so I can get indexation benefit even in international funds

[@sunainagoyal1364]

Thanks a lot sir for sooo much easy and detailed explanation on capital gain with indexation...I have one query regarding this .I generated capital gain statement for my debt mutual fund after listening to this video only .there were 2 columns..like g long term gain with indexation and long term gain without indexation...what does it imply?

[@ETMONEY]

The column on LTCG with indexation gives your gains after accounting for the indexation value per the CII, that we explained in the video.

[@sunainagoyal1364]

@@ETMONEY yes sir ..it's true...without indexation, the value is more...wht does it means? And what is the tax liability? I totally understood the indexation concept completely...but there is doubt regarding tax implication of without indexation amount....

[@ETMONEY]

@@sunainagoyal1364 Tax on debt fund is calculated as 20% of the "LTCG with indexation". We have covered that in a previous video on "Tax on Debt Mutual Funds" kzbin.info/www/bejne/fZuWoGeggt-ZiNk

[@ganeshseshan2618]

Nice explanation and very important topic as well. Does Indexation apply in Hybrid mutual funds investments as well. Please explain.

[@ganeshseshan2618]

@@ETMONEY Thanks for the response.

[@santanuatta73]

Any save tax funda in equity mutual fund ?? Please make a video

[@sohk45]

At 00:27, you say "if this holding period is less than 3 years" but the diagram shows "holding period > 3 years". This is a bit confusing. Is the diagram incorrect or did you mean that "if the holding period is greater than 3 years" at 00:27? Similar confusion at 00:43 where you say the opposite of what the diagram shows :(

[@mdshahidlatif5923]

Amazing concept 💡. In the US taxation, if you hold assets over one year, it is LT. In india it is 3 years?

[@ETMONEY]

3 years for debt mutual funds (not for equities)

[@gauv9304]

< & > is being used incorrectly in the video.

[@0011aks]

What about funds other than debt ? i.e. Equity and other the holding period 3 years is still applicable for LTCG? or it is 1 year ?

[@killallofthem3665]

On Equity, LTCG starts after 1 year.

[@ankuragarwal6311]

How the calculation will be done in case of SIP in debt MF???

[@magicalvoice9508]

Why is indexation not applicable for equity MF? How s tax applied for longer term? Can't we avoid paying 10%?

[@afzaws4140]

How is Dynamic MF taxed? It is mentioned if the holding is 65% in equities is considered equity mutual fund. But the very purpose of Dynamic MF is to fluctuate between equity and debt? Please clarify.

[@ETMONEY]

We checked with a few AMCs and figured that AMCs generally decide before hand if they want this category of funds to have debt taxation or equity taxation.

[@afzaws4140]

@@ETMONEY Thanks for the quick reply. Hope that my earlier comment on correction of ">" & "

[@NAMBINRAJAN]

There is taxes for owning land and gold ????

[@Rushikeshhome]

It confused me. How it will be applied in SIP mode? If I buy some units every month and if I sold some/all units after three years of initial purchase, then how I can calculate this? Please explain coz the above video is really good for a close-ended scheme.

[@SD_003]

Incase of SIP every monthly investment is calculated as 1 lumpsum and same formula as showed in video is applied for every transaction.

[@ETMONEY]

You are right, SD

[@Rushikeshhome]

Thank you S D and @ETmoney, your comments are self-explanatory. Thank you, now it's clear.

[@fuzzylogger]

This is gold. Gr⁸ content

[@ETMONEY]

Thanks

[@KarthiKeyan-th1cn]

Hello sir , Thanks for explaining the same , I understood the concept of indexation... But how does it work incase of SIP. what is the cost of acquisition incase of systematic investment planning.

[@ETMONEY]

Thanks. In case of SIP, you have to treat every transaction individually. Technically think of an SIP as a series of lumpsums

[@KarthiKeyan-th1cn]

@@ETMONEY so what you mean to say is, if I invest monthly 2000 rupees for 10 years , then I have to calculate Indexation 10 times considering the purchase cost as 24000 per year and accumulate everything to compare with the net realised value of my investment. Am I right sir ?

[@ETMONEY]

@@KarthiKeyan-th1cn You have to calculate indexation on all 120 transactions (12 months * 10 years) when you eventually sell. Ofcourse, the easiest thing to do here is to use the capital gain statements offered by CAMS and KFintech. You can use the ETMONEY app to get those cap gain statements.

[@KarthiKeyan-th1cn]

@@ETMONEY sure I'll use the online tools sir, but I just wanted to learn about the issue. Thanks for your quick response in this regard.

[@manivardhan7588]

Does indexation apply automatically while redeeming the debt MF? Can anyone please reply. Thank you..

[@ETMONEY]

Indexation is not linked to the redemption process. Indexation becomes important when calculating your taxes which requires the examination of the capital gain statement

[@ghvratnababu7496]

How the Hybrid Mutual Funds are treated for taxation? Whether indexation is applicable here also?

[@91kunalm]

Any mutual investing more that 65% in equities is considered equity mutual fund. All others are considered debt mutual funds. For e.g. Agressive hybrid funds are considered equity mutual funds because they invest upto 75% in equities wheras conservative hybrid mutual funds are considred debt mutual funds as they invest upto 35% in equities. Note that Gold funds and international funds are also treated as debt funds for taxation purposes.

[@412sahil]

In large cap mutual funds we can not clam indexation benifit?

[@ETMONEY]

Indexation is applicable in non-equity instruments only

[@sriramrajendran24]

For SIP

[@unknowntech7]

Very nice explanation. But why is indexation not applicable on other mutual funds like equity mf?

[@kaushikdas8593]

Sir what about the taxes on equity mf which will be held for more than 3yrs? I have vry little knowledge about this. Please enlighten. Thank you 🙏

[@ETMONEY]

Hi. Indexation benefits don't apply on equity funds

[@kaushikdas8593]

@@ETMONEY ok. So what will be my tax liability in this case? How much and on what basis I have to pay tax?

[@ETMONEY]

@@kaushikdas8593 Please watch our video on Taxation in Equity Funds

[@1436ramu]

How do you calculate the indexation for SIP investment?

[@ETMONEY]

You figure out which units are over 3 years in holding and then apply indexation per the applicable CII.

[@1436ramu]

@@ETMONEY Thank you

[@azeezullasheriff7746]

Excellent Invest in Jan Sell in Apr

[@ritiktiwari5937]

How will this method work if i am investing in debt mutual funds through sip?

[@ETMONEY]

Hi. SIP or lumpsum, it doesn't matter. 1. Date on which the units were sold minus date on which the units were purchased .. becomes the holding period 2. If holding period > 3 years, you have long term capital gain 3. If you have LTCG, then determine the financial year of sale date and purchase date 4. Find the index value per the link we have provided in the description 5. Apply the method we gave you in the video

[@pareshbijvani4512]

What about equity MF? Does indexation apply with equity MF LTCG tax?

[@ETMONEY]

No, it doesnt apply to equity

[@iamdeb4u]

As I understand.. this indexation applies only to DEBT mutual funds.. not to Equity mutual funds. Right? Is there any other technique to save tax in LTCG in case of Equity mutual fund investments??

[@robinsinghchauhan1834]

No there is not right now atleast

[@iamdeb4u]

@@robinsinghchauhan1834 OK.. Thanks

[@ETMONEY]

Yes, indexation does not apply to equity funds. The long term capital gains for equity funds is lower and at only 10% in excess of 1,00,000 rupees

[@iamdeb4u]

@@ETMONEY if there is no tax below 10000 of capital gain annually, should we keep booking that much every year to avoid a larger tax burden after 15-20 years of investment?

[@prashantsoneji]

@@iamdeb4u If you do that. Then you won't be able to see Huge Capital appreciation in Long term.

[@ngalagn]

Good example of indexation benefits. Is the same example also work for mf like ICICI prudential nasdaq 100 mutual fund.

[@ETMONEY]

Thanks! Taxation will be like non-equity funds. So: 1. If units are redeemed within 3 years of investment, the whole amount of gain will get added to the investor's income and will be taxed as per his/her applicable slab rate 2. For units redeemed after 3 years of investment, gains will be taxed at a rate of 20% post indexation benefits

[@ngalagn]

@@ETMONEY But ICICI prudential nasdaq 100 mf is equity mf and Tax implication says 20% indexation benefits is applicable after selling off 3years from purchase date. So app like coin, groww,quicko or any other will automatically update purchase price say as in example 1lac to around 18lac, or we have to manually make correction in purchase price to get indexation benefits.

[@someshranjansahu1209]

Is indexation application on equity based mutual funds???

[@rishabhdubey374]

No

[@barboza1591]

can i invest in the same mutual fund with different brokerage in India?

[@ETMONEY]

Yes ofcourse. And don't forget to track all your mutual funds on the ETMONEY app

[@shagun0007]

How does this differ for equity funds

[@ETMONEY]

There is no indexation benefits on equity funds

[@shagun0007]

@@ETMONEY thanks for your speedy response. And appreciate your spreading these awareness videos!

[@vishnu76241]

Is indexation applicable only for debt funds?

[@ETMONEY]

Yes

[@vishnu76241]

@@ETMONEY Sir, can u also say.. What is interest expenditure incurred on mutual fund dividend income?

[@WhyAnkurGautam]

The 3 year duration is only for Debt MF. right? The Equity MF have 1 year duration.

[@ETMONEY]

Indexation benefits are not available on equity funds.

[@radharamanmukhopadhyay3950]

I have invested in UTI Regular Savings Fund amounting to Rs1600000/ (Rs1000000 in 2010, 250000 in 2016 and Rs350000 in 2019. I receive Rs10500 Every month from UTI. This year I have received a total amount of Rs126000. How shall I calculate Indexation benefits available to me

[@radharamanmukhopadhyay3950]

UTI Regular Savings Fund growth

[@ankushmadankar1756]

Indexation applied to ELSS?

[@ETMONEY]

No

[@akhilsharma887]

Do we get benefit of indexation on equity mutual fund?

[@prithivink6164]

No

[@ETMONEY]

Nope, tax rules don't allow indexation for equities

[@akhilsharma887]

And what about on capital gain on ELSS mutual funds?

[@ETMONEY]

@@akhilsharma887 ELSS = Equity

[@christopherthomas3536]

Is it applicable on Index Funds or other types of Mutual Funds?

[@ETMONEY]

Indexation works for debt mutual funds. A related video you can watch for more specifics is kzbin.info/www/bejne/qYrXn4KMnMl7las

[@anshuoraon8656]

Make videos in hindi also

[@nar6014]

Plus your less than and greater than signs seems to be wrong.

[@SURYADEEPRGOMES]

​ @ETMONEY , please check the greater than and lesser than symbol, wrongly quoted, "Holding Period > 3 years = Long term Capital Gain" and vice versa

[@kirankumarm7439]

0:58 correction : holding period > 3 years -> Long term capital gain

[@MayankVerma19]

It would have been helpful if you had provided this knowledge on SIP too.

[@Arajokota]

This is applicable for SIP too...Debt SIP....They clearly said that equity SIP does not have any Indexation benefits so no point in discussing about Equity SIap

[@greetsandeepful]

Does the capital gains tax report generated by ETMoney incorporate this indexation benefits while computing?

[@worldrepub]

great video, signs ( 3 YRS) are reversed around 50 sec mark.

[@naveenkumarsharma2716]

Excellent presentation and explanation for Indexation; Slight correction: slide is showing holding period >3 years for STCG ( while it should be < 3 years) ; similarly holding period for LTCG should < 3 years. ( it should be > 3 years) .

[@gauravarora790]

Please make a video on section 111A of IT act in respect to STCG saving.

[@saurabhjaiswal9150]

Please correct the typo in the "Holding Period equation" in 1st slide

[@afzaws4140]

Please correct the initial text where it explains capital tax where ">" and "

[@jishnunambiar819]

0:48 Holding period > 3yrs should be long terms and Holding period < 3 yrs should be short terms correct?? @ETMONEY

[@pavan25251919]

0.45 , used graterthan symbol instead of lessthan and lessthan symbol instead of greaterthan.

[@teabreak_]

Which body does this indexation?

[@arunsharma368]

Ye video ka ab koi fayeda nai

[@dipenchauhan150]

Ignore type error @ 1:00 on holding period

[@reubengeorgemathai7329]

I think you got your greater than/less than symbol wrong