KNOWLEDGE CENTRE Tax Planning / Do You Need To Pay Inheritance Taxes On Mutual Fund Units?
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Do You Need To Pay Inheritance Taxes On Mutual Fund Units?


The inheritance tax, more commonly known as the estate tax, was repealed in 1985 after due diligence and consideration of the pros and cons and the effects thereof. Thus, today if you have inherited any asset, it will not be taxed. Mutual funds are one such asset and let us understand how the transfer of ownership will happen under inheritance in such a case.

What are the taxes on inherited mutual funds?

Tax calculation and considerations have always been rather complicated for the average citizen and even more so in case of mutual funds. Though it looks all simple in theory, it tends to be a tedious job to keep track of earnings that were reinvested, the tenure of those investments, and the resulting taxes thereon.

However, when you inherit mutual funds, you do not have to face such hassles. In case of death of the investor who purchased the mutual fund investment, all the units are transferred to you as the nominee or the heir at the prevailing rate on that day. It does not matter if the units were purchased directly or as a reinvestment of the earning of the same investments.

Irrespective of the time of the purchase or tenure of the holding and mode of the purchase, the units get valued at the Net Asset Value (NAV) prevailing on the day of the death of the investor. Then all the units are transferred to you at NAV without having to pay any taxes.

Once the transfer has been made, you will be taxed on the earnings of such inherited assets, as per the income tax slab you fall under. You can certainly profit from the eligible exemptions on the taxes on mutual funds.

  • If you choose to sell the mutual funds that you have inherited, then the original purchase date and price will be considered to calculate the capital gains and holding tenure wherein the applicable taxes will be calculated accordingly.
  • If you continue to remain invested in them, you shall be liable to pay the mutual fund taxes on the annual earnings thereof depending on the type of mutual fund, the holding tenure, and earnings made that would be added to your taxable income.

In effect, only the name of the owner changes in case of inherited mutual funds. The earnings thereof are not affected, nor do you have to pay any taxes to inherit them. However, you would have to pay taxes on the earnings from this inherited asset.

In case, the mutual funds that you have inherited are not Equity-Linked Savings Schemes (ELSS) then you either choose to use the Systematic Withdrawal Plan (SWP) to switch funds and start saving more by means of income tax exemptions on ELSS investments. ELSS is a tax-efficient option because there are no taxes on mutual funds including the principal, dividends, and maturity proceeds invested in these schemes.

As it has already been established that you do not have to pay any mutual fund taxes for inheriting them; thus, all you must concentrate on now is to ensure that they are earning the best possible returns per your risk appetite.

How To Choose The Right Mutual Fund For Your Needs?

Choosing the right mutual funds that serve all your requirements requires a lot of research and analysis. ARQ, our proprietary investment engine, provides you with all the requisite reports and data to carry out the same and assists you in investing in mutual funds, among other investment instruments effortlessly and conveniently.

You can use the ARQ investment engine on your smartphone and start investing or monitoring the performance of your investment portfolio, from virtually anywhere in the world as long as you are connected to the Internet.

The ARQ investment engine is free of all human bias and provides recommendations based on evaluations run by algorithms and quants that take into account all the available information on the instruments and their past performances. ARQ not only helps you in selecting and tracking your mutual fund investments but also enables you to compare the earnings from all sorts of investments available in the market.

This makes it the ideal tool to make informed decisions on your investments needs and set more efficient earnings targets thereof. It makes investment extremely easy for you with its vast and in-depth research that is translated into simple and comprehensive tips.

All you have to do in order to experience our technology-driven ARQ investment tool is download our Angel Bee mobile application on your smartphone and make the right investment decisions.


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