I am a housewife and I have a SIP of Rs 8000 per month in an equity mutual fund for the last seven years. I now want to sell units worth Rs 40,000 for kid’s school fees. Should I sell my MF units now? What will be my tax liability be? Should I go for a personal loan instead of selling units?
Selling of Equity Oriented Mutual Funds, which are sold after a holding period of more than one year are considered as long-term in nature and are taxed at the rate of 10% Capital Gains without any indexation benefits. Thus, Current NAV of your Fund X the Units that you decide to sell, shall be your Sale Consideration less the cost you have paid to acquire those units that are being sold, are subjected to a tax at the rate of 10% being a long-term capital gains tax. It should be noted that capital gains up to Rs 1,00,000 a year per taxpayer are exempted and not subjected to any taxes. Thus, in case if you sell units worth Rs 40,000 (assuming no other long-term capital assets are being sold by you) then, there would be no tax incidence in your hands on sale of such units.
Further, it is never advisable to take up a personal loan when you already have the means and sources to take care of your obligations. Personal loans have fixed outgo’s whereas equity-oriented mutual fund units never have a guaranteed income. Hence, in my opinion, you should sell the units of mutual funds rather than take a personal loan to discharge your Kids School Fees.