How are SIP redemptions taxed using FIFO?

Each SIP instalment is a separate purchase with its own date and cost. When you redeem, units are sold on a first-in-first-out basis, so the oldest instalments go first. This decides whether each unit's gain is long-term or short-term. In a long-running SIP, a partial redemption often draws mostly from older, long-term units.

Key facts

Every SIP instalment is a separate lot with its own purchase date and cost.
Redemptions follow first-in-first-out (FIFO); the earliest units are sold first.
FIFO decides each unit's holding period, and so whether its gain is long or short-term.
In equity funds, only units held over 12 months qualify for the 12.5% long-term rate.

Every instalment is its own lot

A SIP is not one investment; it is many. Each monthly instalment buys units at that month's price, with its own purchase date and cost. That matters at redemption, because holding period decides your tax rate, and each lot has a different one.

FIFO decides what you sold

When you redeem part of a SIP, the tax rule is first-in-first-out. Your earliest units are treated as sold first. So in a SIP you have run for several years, a partial withdrawal usually draws mostly from older units that have crossed the long-term threshold, which for equity funds is more than 12 months.

The upshot is quietly helpful: the longer a SIP has run, the more of any partial redemption tends to qualify for the lower long-term rate. See tax on withdrawals for how the gain itself is then taxed.

Keep your statements

FIFO relies on knowing each lot's date and cost. Your Consolidated Account Statement and the registrar's records hold that, and they are what a correct computation uses. If your records are scattered, talk to us and we will help you pull them together before you file.

Frequently asked questions

Which units are sold when I redeem part of a SIP?

The oldest ones. Redemptions follow first-in-first-out, so your earliest SIP instalments are treated as sold first. That usually means a larger share of a partial redemption qualifies as long-term in a SIP you have run for years.

Why does FIFO matter for tax?

Because each SIP instalment has its own purchase date, and holding period decides the rate. FIFO fixes which units, and therefore which dates, are used for the gain, deciding how much is taxed at the long-term versus short-term rate.

How do I know the cost and date of each lot?

Your Consolidated Account Statement (CAS) and the registrar's records list each instalment's date, units and cost. These are what the tax computation uses, so keeping them makes filing far easier.

This is general information, not a recommendation for your situation. If it would help to talk it through, we are happy to. Talk to Nico Wealth.

The information on this website is general and educational. It is not financial, tax, or legal advice, and not a recommendation for your situation. We try to keep it accurate and up to date, but it may contain errors or become outdated. Please verify important details from official sources, and consider your own circumstances, before acting.

Sources

Last verified: 2026-08-11

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