Index funds are a special type of mutual funds which is passively managed. These funds are also known as passive funds. These funds are being offered as another option available to investors to invest in the Indian equity markets, especially for investors who want only index returns or risk averse investors, who do not want to take stock specific risk.
Taxation of Index Funds
When you redeem units of index funds, you earn capital gains, which are taxable. The rate of taxation depends on how long you stayed invested in index funds, i.e., the holding period. Capital gains you make during the holding period of up to one year are called short-term capital gains (STCG). STCG is taxed at a rate of 15%. Similarly, capital gains you earn after a holding period of more than one year are called long- term capital gains (LTCG). LTCG over Rs 1 lakh is taxed at 10% without the benefit of indexation