Investing in equity mutual funds is a popular strategy for long-term wealth accumulation in India. When redeeming mutual fund units, investors may face capital gains tax, which is influenced by the FIFO (First In, First Out) method. This method dictates that the earliest purchased units are considered sold first, significantly affecting the tax implications. For instance, if an investor buys units in multiple installments and redeems them later, the FIFO method helps classify the gains as either Short-Term Capital Gains (STCG) or Long-Term Capital Gains (LTCG). STCG, applicable when units are sold within 12 months, is taxed at 20%, while LTCG above ₹1.25 lakh (approximately $1,500 USD) in a financial year is taxed at 12.5% without indexation, with gains up to ₹1.25 lakh being tax-exempt. An example illustrates that if an investor redeems 150 units after holding them for over 12 months, they may not incur any tax liability if their total LTCG is below ₹1.25 lakh. Understanding the FIFO method is essential for mutual fund investors, particularly those utilizing Systematic Investment Plans (SIPs), as it aids in effective tax planning and enhances overall returns.