Here is how you can use this “market crash” to clean up your equity fund portfolio tax-free! Have you always wanted to switch from regular plans to direct plans? Always wanted to reduce the number of funds in your portfolio? Wanted to switch to index funds after ahem reading a certain blog? Then here is your chance to clean up free from long-term capital gains tax.
Well, it is not much of a crash, not yet anyway, but every cloud has a silver lining and this is a great opportunity to get rid of mutual funds that you have been holding without further investments for a while now and/or get rid of units older than one year from regular funds or fund that you do not care about anymore.
How to use this “market crash” to clean up your equity fund portfolio tax-free!
- Go the Value Research and locate your fund’s page
- Click on the performance tab and scroll down to the “trailing return” chart
- On the top right, you will see the dates. Set the “from” date to Jan 31st 2018 and leave the “to” data as is.
- Check if you fund’s current NAV is lower than that on Jan 31st 2018. That is a negative absolute return between Jan 31st 2018 to say, 5th Oct 2018 (you can also give it a couple of days to make sure the NAV is well below).
- If current NAV (say 5-10-2018) < NAV on 31st Jan 2018 then, all equity mutual fund units purchased before 5th Oct 2017 are free from long-term capital gains tax.
- Even if current NAV > Jan 31st 2018, you can still redeem, but you need to make sure the total long-term capital gains booked this financial year is less than or equal to one lakh. This may not be the case for those who have been investing for several years now. So the condition in step 5 is a lot more convenient.
- Note that, current NAV < NAV(31-01-2018), is not a real loss and you cannot use this offsetting other capital gains. Real capital gains loss is only when current NAV < NAV (purchase date)
- Note that point no 5 applies only to long-term capital gains. So you can now pull out units that are older than 1Y old for now and pull out the rest when you get another chance.
So here is a snapshot for Franklin Blue Chip India from Value research (I have added the annotation in blue)
Of course, you could have cleaned up your folio following the above logic between April 1st 2018 and Aug 16, 2018, too! Just pointing that you got another chance. Watch the following video to understand you can reduce the number of funds in your portfolio or reduce exposure to unnecessary funds tax-free.
Why your equity fund portfolio can be cleaned up tax-free!
# Check out more videos from the freefinal youtube channel
# You can find out how many units are eligible for LTCG using this Equity LTCG Tax With Grandfathering Calculator (this post also has pictures from the above video that you look up for better understanding)
# Also, check these out: