I’ve models of the next funds – ICICI Prudential Bluechip, Canara Robeco Flexicap, SBI Focused Equity, Axis Bluechip, ABSL Focused Equity, and HDFC Corporate Bond price ₹75 lakh. I must liquidate round ₹50 lakh within the subsequent six months to buy a plot of land. What is the suitable and tax-efficient technique for this?
— Name withheld on request
Your investments in fairness and debt mutual funds have totally different tax implications. The long-term capital acquire in fairness funds (over ₹1 lakh) might be taxed at 10% with out indexation, and for the debt mutual funds, it is going to be taxed at 20% with indexation. Long-term capital acquire tax is relevant after three years of funding for debt mutual funds whereas for fairness funds, it’s after one 12 months. Loads will depend on your different near-term and long-term necessities whereas engaged on the withdrawal plan.
You ought to examine the capital beneficial properties for every fund earlier than deciding which one to withdraw. If the capital acquire tax is low for sure funds then you might go for these funds to keep away from paying larger taxes at this level. Considering the asset class of the funds, their current efficiency and present surroundings, you possibly can have a look at redeeming from HDFC Corporate Bond, ABSL Focused Equity and Axis Bluechip. If there’s a shortfall, then partially withdraw from the opposite fairness funds. However, the very first thing to examine is which fund has comparatively much less long-term capital acquire.
Another vital factor to do is to regularly begin withdrawing from fairness funds for the approaching six months as a substitute of ready and withdrawing in a single go. The month-to-month withdrawal will aid you to de-risk the required quantity over a interval and in addition aid you keep away from erosion of amassed quantity if the inventory market corrects once you want the whole cash. You can maintain parking the withdrawn cash from fairness funds in your financial savings account or liquid funds as the danger on these investments may be very low in comparison with fairness for a brief period like six months.
Harshad Chetanwala is co-Founder at MyWealthGrowth.com.
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