New Delhi, April 26 -- Investing in equity mutual funds is one of the most popular ways for individuals to build long-term wealth. However, when investors redeem or sell their mutual fund units, they may have to pay capital gains tax depending on the profit earned and the holding period. One of the most important rules used to calculate this tax is the FIFO method, which stands for "First In, First Out".

The FIFO method plays a key role in determining which mutual fund units are considered sold first when an investor has purchased the same fund units on different dates and at different prices. This directly affects the amount of capital gains tax payable.

FIFO means that the units purchased first are treated as the first ones to be sold...