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NISM Certifications · NISM-Series-V-A: Mutual Fund Distributors · Concept and Role of a Mutual Fund

An investor invests Rs 1,20,000 in an open-ended equity scheme at an NAV of Rs 24.00 when there is no entry load. After 18 months the NAV is Rs 30.00 and the investor redeems all units with no exit load. What is the absolute return and how is the gain classified for tax purposes under current rules, based on holding period?

The investor buys 5,000 units and redeems them for Rs 1,50,000, a gain of Rs 30,000, which is a 25% absolute return on Rs 1,20,000. Since an equity-oriented scheme held for more than 12 months qualifies, the gain is long-term capital gain.

  1. A25% return; short-term capital gain
  2. B25% return; long-term capital gainCorrect
  3. C20% return; long-term capital gain
  4. D50% return; short-term capital gain

Explanation

Units = 1,20,000/24 = 5,000. Redemption value = 5,000 x 30 = Rs 1,50,000, a gain of Rs 30,000, which is 25% of the cost. An equity-oriented fund held for more than 12 months gives long-term capital gain, and 18 months exceeds that. 20% wrongly uses the sale value as base.

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