Mutual fund redemption or education loan: Which is the better way to fund your child’s higher education?

Are you wondering whether to redeem your 90% equity mutual fund portfolio or take an education loan to fund your child’s Rs 1.05 crore MBBS degree when you're nearing 50, and which loan tenure offers the greatest financial benefit? Here is some help, as reported by ETWealth.

The original goal of this mutual fund portfolio matters. If it was meant for your son’s education, you can systematically redeem it to fund the fees. If it’s meant for something else, say retirement, then either take a full loan, provided your income is stable enough to service it, or split the cost between the portfolio and a loan, said Rushabh Desai, Founder, Rupee With Rushabh Investment Services.

The expert said redeeming equity funds triggers LTCG tax of 12.5% above a Rs 1.25 lakh annual exemption (20% if held for less than a year).

Desai further said that doing this in tranches of Rs 21-22 lakh a year, matched to each year’s fee, uses the exemption five times over instead of once, sheltering up to Rs 6.25 lakh of gains.

The expert also highlighted that secured MBBS loans typically cost 9-11%. Under Section 80E (Section 129 of the Income Tax Act, 2025), interest is fully deductible for up to eight years, but only under the old tax regime.

At the 30% tax rate plus cess, this brings the effective loan cost down to roughly 6.2-7.6%. With a stable, rising income, borrowing can therefore be more tax-efficient, the expert said.