InvestorQ : Can you explain double indexation benefit to me with an illustration of a live situation?
Chandralekha Desai made post

Can you explain double indexation benefit to me with an illustration of a live situation?

Answer
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Mitali Bhutta answered.
1 year ago


Assume that Jagan invested in a Fixed Maturity Plan of HDFC Mutual Fund on March 29th 2015. This FMP was redeemed on April 03rd 2018 by the fund. FMPs are closed ended funds where the fund invests in securities whose maturity profile match with the maturity profile of the fund. What happens in this case is that March 29th 2015 falls in FY 2014-15 whereas the sale date of April 03rd 2018 falls in FY 2018-19. Effectively, the cost of acquisition in the case of Jayant will be indexed by the CCI of 2018-19 / CCI of 2014-15. That gives him the benefit of 4 indexation years even though he holds it for just 3 years and 5 days. These kinds of debt funds and FMPs are issued basically to give the investor the additional benefit of double ideation to the debt fund investors. Basically, what happens here is that you get an additional year indexation benefit by just holding it for 7 days more than 3 years? That is what double indexation is all about.