I am seeing a lot of fluctuations in my total value of equity investments done through SIP. Should I redeem some so that the loss is minimised though I do not need any money now?
Equities are the most favoured asset class for wealth generation over the long term, with the potential to deliver superior inflation-adjusted returns compared to fixed-income. Equities are more volatile than most asset classes with even possibility of a capital loss or drawdown over the short-term. However, as the holding period increases, the risk of capital loss diminishes.
More recently, markets have faced some resistance amid profit-booking at high valuations, concerns around rising interest rates and a resurgence in Covid -19 infections domestically and across the globe. Recent market events have led to increased volatility which is also reflected in the market value fluctuations of your investments.
You should continue to stay invested if you have a long investment horizon, and can even look to allocate further when such corrections occur as these present an opportunity to buy units at cheaper prices. Investors should ideally stick to their strategic asset-allocation which in turn depends on their risk appetite (ability and willingness to take risk) and not try and time the markets.
I have invested in two equity funds for over eight years. I want to redeem some money every month. How can I withdraw the money every month and what will be the tax implication of the withdrawal?
You can opt for withdrawing some portion of your accumulated corpus via the systematic withdrawal plan (SWP) route. The redeemed proceeds are subject to capital gains tax (short-term or long-term) depending on the holding period and asset-class orientation of the scheme invested in (equity/fixed-income / commodities). Given you have invested into equity schemes for over eight years, the withdrawal amounts corresponding to units held over one year would likely attract long-term capital gains tax at the rate of 10% (excluding cess, and any surcharge if applicable) on capital gains in excess of Rs 1 lac per annum. For units held for periods up to one year, short-term capital gains tax is levied at 15%.
The writer is director, Investment Advisory, Morningstar Investment Adviser (India). Send your queries to firstname.lastname@example.org