If you have mutual fund investments, you can pay for a home renovation either by redeeming some units or by taking a loan against them. Redeeming makes sense for money already set aside for the purpose, while borrowing helps you avoid selling long-term investments and paying tax on gains.
Renovation work rarely needs all the money at once. You pay an advance to the contractor, then for materials, then for fittings, and costs often go beyond the first estimate. If most of your savings sit in mutual funds, the question is how to use them without disturbing your other financial goals. Here is how to plan it.
Knowing the actual cost first helps you decide how much to redeem or borrow. Get written quotes from contractors and list every part of the work, such as civil work, electricals, plumbing, flooring, painting and furniture.
Add 10% to 15% on top for price changes and unplanned repairs. Also note when each payment will be due. Renovations are paid in stages, and this timeline will shape which funding option suits you best.
Selling units is the simplest route, but it works well only in certain cases.
Redemption is a sensible choice when:
Before you sell, check the tax. Equity fund gains held for more than a year are taxed at 12.5% above ₹1.25 lakh a year, and gains held for less than a year are taxed at 20%. Gains from debt funds bought after April 2023 are added to your income and taxed at your slab rate. Exit loads may also apply if you sell within a fund's set period.
If your funds are meant for long-term goals like retirement or your child's education, selling them for a renovation can set those goals back.
A loan against mutual funds lets you pledge your units and borrow against their value. Your investments keep compounding, and you avoid capital gains tax since nothing is sold. Restarting an investment later from a lower base is often harder than it seems, so this option can protect years of savings.
This loan also fits the way renovation bills come in. Many lenders offer it as an overdraft limit. You withdraw money only when a payment is due and pay interest only on the amount used for the days it is used. If the work takes longer than planned, you are not paying interest on idle money.
Your loan amount depends on the type of funds you hold, not their full value. Lenders usually offer around 50% of the value of equity funds and around 70% to 80% for debt funds. A loan against mutual funds calculator can show your eligible amount before you apply. Enter your holdings, and you can see whether the loan covers your full budget or only part of it.
If the loan covers only part of your budget, you can combine the two approaches. Use savings or redeem short-term funds for the first payments, and borrow the rest.
It is worth checking how this option stands against the other common choices before you decide.
A loan against funds usually sits between these. It costs less than a personal loan and is quicker to arrange than a property-backed loan, with no property documents required.
Borrowing against investments carries its own risks, and a little planning keeps them small.
Because your pledged units move with the market, a sharp fall can lead to a margin call. You may then have to repay part of the loan or pledge more units. To reduce this risk:
Your mutual funds can pay for your home renovation in more than one way. Redeem funds meant for this purpose and borrow against those set aside for long-term goals. Work out your budget and payment schedule first, check your eligible loan amount, and keep repayments on track. This way, your home gets its upgrade without setting your other plans back.
