year 2020 After this, investors investing in mutual funds have got bumper returns. Many mutual fund schemes have given annual returns ranging from 30% to 50%. Due to this, investors' money has doubled and tripled. However, at present many investors are scared of the fact that if the market is bullish then huge earnings are visible. If the market falls, you will have to suffer loss. What to do if you are also sitting on huge profits from mutual funds? Should I withdraw the money and repay the home loan or other loans or remain invested? Let us know what should be done.
Evaluate home loan interest
Home loans tend to be long term, which means paying higher interest over time. Even if your interest rate is low, in the long run you end up paying interest worth several lakhs of rupees. By prepaying the loan, you can reduce your principal amount and save interest.
On the other hand, home loans offer tax benefits under sections 80C and 24(b). This deduction can be reduced by prepayment of the loan. If you are relying on these tax benefits to reduce your taxable income, it may not be wise to make full prepayment.
Tax burden on mutual fund withdrawals
Tax has to be paid on withdrawal of money from mutual funds. Long-term capital gains (LTCG) tax on equity mutual funds is 12.5% for gains above Rs 1.25 lakh per financial year, while capital gains on debt mutual funds are taxable at the applicable income tax slab rate of the recipient. That means tax will have to be paid as per the income tax slab.
Not only this, mutual funds are liquid investments, which provide quick access to funds in case of emergencies. The home loan, once prepaid, is locked into your property. If you don't have a solid emergency fund, cashing out mutual funds to prepay a loan can leave you financially vulnerable.
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