HSBC Tax Saver Equity Fund to merge into Flexi Cap Fund: Reason, consequences, tax impact

HSBC Mutual Fund has announced the merger of HSBC Tax Saver Equity Fund into HSBC Flexi Cap Fund, with effect from January 23, 2026.

HSBC Tax Saver Equity Fund is an open-ended equity-linked saving scheme (ELSS) with a statutory lock-in of 3 years and tax benefit under the old tax regime, whereas HSBC Flexi Cap Fund is an open-ended dynamic equity scheme investing across large-cap, mid-cap, and small-cap stocks.

In a letter to unitholders dated December 17, 2025, HSBC Mutual Fund said that the Securities and Exchange Board of India (SEBI) issued its no objection to the merger on December 1, 2025.

What is the reason for the merger?

HSBC Mutual Fund said that the HSBC Tax Saver Equity Fund was launched by HSBC Mutual Fund in the year 2007. However, consequent upon the acquisition of L&T Investment Management Ltd by the AMC and transfer or merger of schemes of L&T Mutual Fund to HSBC Mutual Fund in November 2022, the subscription into the HSBC Tax Saver Equity Fund was stopped with effect from November 25, 2022 as only one open-ended ELSS scheme is permitted as per the ELSS guidelines and SEBI Regulations.

HSBC MF also offers another ELSS scheme named 'HSBC ELSS Tax Saver Fund'

Further, by November 25, 2025, all investors in the HSBC Tax saver Equity Fund have completed the 3-year lock-in period as mandated under the ELSS guidelines. Hence, the fund house has now decided to merge the HSBC Tax Saver Equity Fund with HSBC Flexi Cap Fund.

HSBC Mutual Fund also said that both HSBC Tax Saver Equity Fund and HSBC Flexi Cap Fund follow a flexi cap approach with exposure across large cap, midcap and small cap segments and a "bottom-up stock selection strategy".

"This alignment ensures continuity in investment philosophy for existing investors post-merger. Investors will benefit from being a part of a larger and actively managed fund without any need for reinvestment decisions," it said.

Consequences for unitholders

Unit holders of the tax-saver fund will be allotted units under the flexi-cap scheme at the applicable Net Asset Value (NAV) as of January 23, 2026, which is also the effective date of the merger.

Investors under the IDCW options of the merging scheme will be allotted units in the existing IDCW option of the flexi-cap scheme under the relevant plan/option.

There will be no change in the value of units held by an investor before and after the merger.

"This merger will not result in creation of any new scheme, as the Merging Scheme will merge into the Surviving Scheme. Further, no changes are proposed in any of the scheme provisions of the Surviving Scheme and accordingly, interest of unitholders of Surviving Scheme shall not be adversely affected on account of the proposed merge," the mutual fund said.

HSBC Mutual Fund shared the following illustration to explain how units will be allocated after merger:

Existing subscribers of the tax-saver scheme will have the option to exit between December 24, 2025 to January 22, 2026. In case they chose to exit, no exit load will be charged to them.

"In accordance with Regulation 18(15A) and Regulation 25(26) of the SEBI (Mutual Funds) Regulations,1996, all the existing unit holders under the Merging Scheme, are given an option to exit the Scheme at the applicable Net Asset Value without any exit load on such redemption. This option is valid for a period of 30 days," the letter said.

Tax implications

No capital gains will arise due to the merger if the investor do not exit or redeem their units.

"Pursuant to merger, any transfer of units held by the unit holder in the Merging Scheme in consideration of the units allotted in the Surviving Scheme who decide to continue their investments, will not be considered as redemption of Units in Merging Scheme and will not result in short term / long term capital gain /loss in the hands of the Unit holders. Furthermore, the period for which the units in the Merging Scheme were held by the Unit holder will be included in determining the period for which corresponding units were held in the Surviving Scheme by the Unit holder and the cost of acquisition of units allotted in the Surviving Scheme pursuant to merger will be the cost of acquisition of original units in Merging Scheme," HSBC Mutual Fund said.

However, redemption/switch-out of units from the merging scheme may entail capital gain/loss in the hands of the unitholder.