When to sell your funds
We personally believe that before you invest, do your homework thoroughly and sit on it for a long-term. Nevertheless, there are instances when you are required to sell your investments. Selling your investment is not a bad idea; however, it should be for good reasons and not for the wrong reasons.
There are two ways to approach while selling your investments-Tax issue and non-tax issues.
Non-Tax Issue
Selling to meet your goals: You have invested in a fund and assigned yourself towards a goal. Now, when that goal is nearing, it is a good reason to sell your investments. It is not necessary for you to wait until your goal period to sell your investments. If your investment has achieved the required amount much before the goal period, you can sell it and keep it in safer investments.
Keeping the right portfolio mix: A better reason to dispose of your investment is to diversify your portfolio. If any of your stock has become a multi-bagger and forms a higher percentage of the total portfolio, you can sell part of it to invest in other selected instruments, in order to diversify your portfolio.
Tax Issues
Till a couple of years back, there was no long-term capital gain tax and hence, there was no term called ‘tax gain’ harvesting. The long-term capital gain tax was introduced last year. According to this, all the long-term capital gain tax on equity and equity-related products are charged at a rate of 10 per cent over and above Rs 1 lakh of gain. For example, if you have invested Rs 1 lakh a few years back, its value has grown to Rs 1.5 lakh now. If you decide to sell it, you do not have to pay any long-term capital gain tax. Nevertheless, if your investment value is at Rs 2.5 lakh, you will have to pay a tax of Rs 50 thousand (Rs 2.5 lakh-(1.0 lakh +1.0 lakh)) at a rate of 10 per cent. Hence, your total tax liability will come to Rs 5,000. This one lakh limit is given every year and it does not accumulate. Hence, it makes sense to select certain funds from your portfolio every year and book profit, which you can invest again on those funds. This will reduce your tax liability in future and enhance your returns.