InvestorQ : Are index funds are good for position trading & how they are taxed?
Priyanka Singh made post

Are index funds are good for position trading & how they are taxed?

Answer
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divya Sing answered.
1 month ago


Index funds are a type of equity mutual fund and are taxed just like any other equity fund. When you redeem units of index funds at a profit, you earn capital gains. These capital gains are taxable and the rate of taxation depends on how long you remain invested in an index fund i.e the holding period. If you redeem your investments within one year, the capital gains generated are subject to short term capital gains (STCG), which are taxed at 15%. If you redeem your investments after 1 year, your capital gains will be subject to long term capital gains (LTCG). You will be required to LTCG only if your gains exceed Rs1 lakh. Even then, you need to pay 10% on the amount exceeding the Rs. 1 lakh limit.

To answer your second question, these funds will not work for position trading. This is because their prices do not change as rapidly as shares and derivatives. So, the potential to make an arbitrage gain is not present.