Understand the pass-through taxation framework of Specialized Investment Funds (SIFs) and how it impacts your returns.
One of the most attractive features of Specialized Investment Funds is their taxation framework. SEBI has structured SIFs to enjoy pass-through tax status, similar to mutual funds. This means the income is taxed directly in the hands of investors, and not at the fund level.
For equity-oriented SIFs (investing at least 65% in equities), the gains are taxed like equity mutual funds—short-term capital gains (STCG) at 20% and long-term capital gains (LTCG) at 12.5% beyond ₹1.25 lakhs per year.
For debt-oriented SIFs, taxation follows the slab rate of the investor, with interest or short-term gains added to income. Hybrid SIFs are taxed depending on their portfolio mix and SEBI’s classification. Dividends from SIFs are also taxable in the hands of investors.
Additionally, SIFs fall under the reporting and compliance rules applicable to regulated investment vehicles. Investors must consider their personal tax situation and consult advisors before investing.
This transparent and pass-through tax model makes SIFs more efficient than many alternative products, giving them an edge in the Indian wealth management industry.