SIP taxation and FIFO redemption ordering

Mon, 18 May 2026 00:00:00 +0000

SIP taxation in India uses the First-In-First-Out (FIFO) redemption ordering, where each SIP instalment creates a separate lot with its own purchase date and NAV. When the investor redeems units, the oldest lots (FIFO) are deemed redeemed first, determining the cost basis and the holding period for capital-gains tax computation. The FIFO ordering is critical for SIP investors because it affects:

Long-term vs short-term classification: Per-lot holding period.
Cost basis: Per-lot purchase NAV.
Tax incidence: Older lots typically have lower cost basis (higher gain).

For Indian retail SIP investors, understanding FIFO is essential for planning redemptions, particularly for tax-optimal withdrawal strategies and SWP execution.

SIP Tax on WebNotes

SIP taxation and FIFO redemption ordering