NISM Certifications · NISM-Series-V-A: Mutual Fund Distributors · Taxation
A resident investor in an equity-oriented scheme holds units bought at different times. On a partial redemption, which method is used to identify the units sold for computing capital gains?
The First In First Out method applies: the earliest purchased units are treated as redeemed first when computing capital gains on a partial redemption. LIFO, weighted average cost and investor-chosen identification are not the prescribed method for units in a folio.
- ALast In First Out
- BWeighted average cost
- CFirst In First OutCorrect
- DSpecific identification chosen by the investor
Explanation
For mutual fund units held in one folio, capital gains on redemption are computed by treating the earliest purchased units as sold first (FIFO). Average cost is used for NAV-related purposes, not for this. Investors cannot choose which units are deemed sold in the case of units held in a demat/folio account.
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