Selling a property often results in a significant capital gain, leaving investors with a crucial decision—whether to reinvest for tax savings or deploy the funds to maximise long-term wealth. With multiple options available, from real estate reinvestment to equity exposure, choosing the right mix depends on time horizon, liquidity needs, and financial goals.

The same is the case with Aditya, a viewer of The Money Show on ETNow. He plans to invest capital gains from a property sale into a mix of high-growth and stable instruments for a long-term horizon of around 10 years. The key question is a suggestion on combination of investments for good returns and how time and amount-wise distribution should be done

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Understanding capital gains taxation

Explaining the basics, financial expert Shweta Jain said that capital gains from property arise when an asset is sold at a profit. If the property is held for more than two years, it qualifies as long-term capital gains.

She noted that taxation on such gains is currently structured at 12.5% without indexation or 20% with indexation from 2024.

“So, any property that is held for more than two years, you can have indexation. Indexation basically adjusts your cost of acquisition to current,” the expert said. Indexation helps adjust the purchase price of the property for inflation, thereby reducing the taxable gains.
She also highlighted that investors should explore legitimate ways to save on capital gains tax, depending on whether they want to reinvest in property or other eligible assets. “So, your cost of acquisition sort of increases, so profit reduces for capital gains calculations. So, when you have a profit, you want to sort of save the capital gains also because you do not want to pay tax on the entire thing if you can help it. There are legit ways to save capital gains especially on property,” Jain said.

Reinvesting in property vs exploring other options

One of the most common ways to save tax is reinvesting the gains into another property. However, Jain pointed out that while this helps in tax efficiency, it may not always be the best option for wealth creation.

She explained that real estate investments come with limitations such as large capital commitment, lower liquidity, and constraints in quickly accessing funds when needed. This makes it important for investors to evaluate whether locking a significant amount into another property aligns with their broader financial goals.

There are a few sections based on whether you want to buy another property, whether you already have another property in consideration, whether you want to buy any other long-term asset, whether it is again a property, Jain said.

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Role of equity in long-term wealth creation

The expert said Aditya can invest in another property if he wishes to save capital gains tax. However, we also have the opportunity of maximising his wealth. So, property again comes with its own set of restrictions whether it is a huge amount of capital being blocked or limited liquidity requirement if required to liquidate immediately or other sort of constraints when it comes to property.

For investors with a longer time horizon, equity can be a compelling alternative. Jain said that equity investments are better suited for goals beyond five years, as they have the potential to generate higher returns over time despite short-term volatility.

Given Aditya’s 10-year horizon, a combination of equity and relatively stable instruments could help balance growth and risk. However, the exact allocation would depend on his risk appetite and financial needs.

Balancing growth and stability

The key, Jain suggested, is to avoid concentrating the entire capital gains into a single asset class and instead diversify across instruments to optimise returns while managing risk.

Capital gains from property sales present an opportunity not just for tax planning but also for long-term wealth creation. While reinvesting in property can offer tax benefits, investors should weigh it against liquidity constraints and return potential. A well-balanced portfolio with a mix of equity and stable assets, aligned with a long-term horizon, can help achieve both growth and financial flexibility.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)

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India’s banking sector ended FY26 on a robust note, with systemic credit growth accelerating to 16.1% year-on-year as of March-end, reflecting sustained demand across segments. Notably, the final fortnight of the fiscal saw a sharp pickup, with incremental credit addition of nearly INR6 trillion, underscoring a strong finish to the year.

On the liability side, deposit growth also witnessed a meaningful surge, rising to 13.5% YoY compared to 10.8% in the preceding fortnight. The system added approximately INR12 trillion in deposits in the last two weeks of March alone, indicating an aggressive mobilization push by banks to support balance sheet expansion. Despite this improvement, the gap between credit and deposit growth remains elevated at 2.6%, though it has moderated from earlier levels.

This easing is reflected in key liquidity indicators. The system-level loan-to-deposit ratio (LDR) declined to 81.4% from 83% in the prior fortnight, while incremental LDR dropped sharply to 81% from 101%, marking one of the lowest levels since August 2025. The moderation suggests some relief in funding pressures, albeit within a still tight liquidity environment.

Banks have increasingly relied on wholesale funding avenues to bridge the gap. Certificate of Deposit (CD) issuances rose to INR14.3 trillion in FY26, up from INR11.7 trillion in FY25, with nearly 30% of issuances concentrated in February and March. Notably, peak CD rates touched 8.2% in March despite a lower policy repo rate of 5.25%, highlighting persistent tightness in system liquidity and elevated marginal cost of funds.

Structurally, regulatory frameworks such as Liquidity Coverage Ratio ad Net Stable Funding Ratio optimization offer headroom for balance sheet expansion, with potential for further improvement in credit-deposit ratios. This, coupled with strong second-half momentum, positions the sector for sustained growth.

Looking ahead, the sector is expected to maintain a steady growth trajectory, with credit growth projected at a 14% CAGR over FY27–28. However, the interplay between deposit mobilization, funding costs, and liquidity conditions will remain critical. While demand-side fundamentals remain intact, the ability of banks to efficiently manage liabilities will be key to sustaining margins and supporting future growth.

AU Small Finance Bank: Buy| Target Rs 1250

AU Small Finance Bank is actively pursuing a universal banking licence, which would significantly expand its liability franchise, reduce cost of funds, and unlock access to a much larger customer base. This transition, if successful, would re-rate the bank meaningfully, positioning it closer to established private sector peers in terms of valuation and business scale. AU SFB’s core strength lies in serving the underbanked and MSME segments across Rajasthan, Gujarat, and tier 2-3 markets; a space with decades of growth ahead. As financial inclusion deepens and credit penetration rises in these geographies, AU is structurally positioned to compound its loan book at a healthy 25-30% CAGR over the long term. Unlike most small finance banks, AU has demonstrated an exceptional ability to build a retail deposit base; a critical differentiator for long-term sustainability.

ICICI Bank: Buy| Target Rs 1750

ICICI Bank continues to deliver a well-rounded performance, supported by improving loan growth, a strong liability franchise and resilient asset quality. Growth remains well diversified, with SME and business banking expected to sustain high-teen expansion, supported by improving demand conditions and a healthy enquiry pipeline. We estimate the loan book to grow at ~16% CAGR over FY26–28.On the liabilities front, the bank maintains a stable and granular deposit base, with deposits growing ~9% YoY and CASA ratios holding steady at ~40–41%. Asset quality remains a core strength, with strong underwriting and adequate provision buffers ensuring stability. Credit costs are expected to remain contained at ~45–50 bps, while GNPA/NNPA ratios are likely to improve further. Overall, ICICI Bank is well positioned to deliver steady earnings growth, with PPoP/PAT CAGR of ~18%/16% over FY26–28, supporting RoA/RoE of ~2.3%/16.4%.

(The author is Siddhartha Khemka, Head of Research – Wealth Management, Motilal Oswal Financial Services)

(Disclaimer: Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of the Economic Times)

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