If you stay invested in an equity oriented growth scheme for more than a year (3 years for a non-equity oriented scheme), gains(or losses) made on redemption will be treated as Long Term Capital Gains (LTCG). LTCG upto Rs 1 Lakh will be exempt from tax and for LTCG above Rs 1 Lakh tax should be paid as per the long term capital gains tax rate of 10%.
For those opting for a dividend option, the dividend declared by mutual funds is tax-free at the hands of the unit-holders. However, dividend distribution tax is paid by the fund house so you do end up paying tax though not directly.
