Mutual Funds for you: Difference between dividend plan and growth plan in a mutual fund scheme - The Tax Trap for Dividend Reinvestment

Picking up from where I began yesterday...

Gains from selling your growth plan funds will not have to face taxation if held for at least one year. Your dividends would also be totally tax-free. But, there's a catch - there has to be one in tax matters isn't it? If you opt for dividend reinvestment, and you are allotted units as dividend you'd have to hold those units for a year. That means, if you sell before the units are 1-year old, short term capital gains tax will be imposed on the gains arising from the sale. :(