Parag Parikh SIP calculator

Indian tax law does not care what a fund calls itself. What matters is how much it holds in domestic equity.

A scheme is treated as equity-oriented for capital gains purposes when it holds at least 65% in domestic listed equity. Clear that bar and you get the equity regime: 20% on gains from units held twelve months or less, 12.5% beyond that, with a ₹1.25 lakh annual long-term exemption.

Fall below it, and the fund is taxed under different rules — historically much less favourably, with longer holding periods required for concessional treatment or, for specified funds, slab-rate taxation regardless of holding period.

Why this matters for funds with foreign holdings: overseas equity does not count toward the 65% domestic test. A fund holding, say, 70% Indian equity and 25% foreign equity is equity-oriented; one holding 60% Indian and 35% foreign may not be — despite being 95% equity by any ordinary meaning of the word.

The portfolio composition is disclosed in the scheme's monthly factsheet and portfolio disclosure. Look for the split between domestic equity, overseas equity, debt and cash — and note that funds which run close to the threshold may manage their allocation specifically to stay on the right side of it.

Two consequences worth planning for:

• It is not permanent. A fund's composition moves with flows and with the manager's decisions, and regulatory limits on overseas investment by Indian mutual funds have been adjusted in the past, which can force allocation changes.
• Your tax depends on the position when you redeem, not when you bought. So this is worth re-checking before a large redemption rather than once at purchase.

This is exactly the kind of question to put to a chartered accountant rather than to a calculator. General rules are in SIP taxation in India; your specific fund's status is a fact about that fund, which we do not track.

Set the tax question aside for a moment. Holding some foreign equity reduces concentration in a single economy and currency — a genuine diversification benefit, and rupee depreciation over long periods has historically added to returns measured in rupees.

Against that: an added layer of cost, currency risk in both directions, and the tax complication above. Whether the trade is worthwhile is a portfolio question, not a calculator question.

What the calculator can do is show you the cost of getting the tax treatment wrong. Modelling a twenty-year holding at the equity rate when the debt regime applies overstates your post-tax outcome materially.