Mutual Fund SIP | Should the loan be repaid prematurely with mutual fund money? Your one decision will save you from debt
Mutual Fund SIP In the last few years, mutual fund investment has given people more returns than expected. Many mutual fund schemes offer annual returns of 30% to 50%, doubling or tripling investors' money. However, many investors fear that due to the rise in the market, the market is currently making huge profits and if the market falls, they will have to suffer losses. What if you are also earning huge profits from mutual funds? Should we withdraw the money and repay the home loan or other loans or allow investments to continue? I don't know what to do. If you are also confused then first understand which decision is beneficial for you.
The most important thing is to calculate
When you have to take this decision, do the calculations first. Calculate how much interest you are getting in mutual funds and how much interest you will have to pay on home loan. Home loan is taken for a long period for which you have to pay lakhs of rupees only as interest. But don't ignore the fact that you get tax breaks through home loans too. Even if the interest rate on your home loan is low, you will have to pay interest worth lakhs of rupees in the long run. By pre-paying the loan, you can reduce your principal amount and save interest. Also, you will not have to pay installments for a long time, but you will not be able to avail tax exemption under Section 80C and 24 (B) of the Income Tax Act.
Tax burden on mutual fund withdrawals
Returns from mutual funds are taxable. Long Term Capital Gains (LTCG) tax on equity mutual funds is 12.5% on profits above Rs 1.25 lakh per financial year, while capital gains on debt funds are taxable as per the applicable income tax slab rate of the recipient. That means you will have to pay tax as per the income tax slab. Not only this, mutual funds are liquid investments that provide immediate funds in case of emergencies. The home loan gets locked in your property only after pre-paid. If you do not have sufficient emergency fund, withdrawing money from mutual funds for pre-pay off debt can make you financially weak.
What is the right thing to do?
The decision to withdraw mutual fund profits and repay home loan can harm you. You can consider this option only in case of emergency, but this option should not be used when you have sufficient means to pay the home loan EMI.
Disclaimer : Investing in mutual funds and stock market is based on risk. Before investing in the stock market, definitely consult your financial advisor. tezzbuzz.com will not be responsible for any financial loss.
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