I have 12 lakh money with me. However i have 11 lakh personal loan with 10.2% interest and housing loan of 30 lakh with 7.6% interest. I have 5 lakh in mutual fund. Should I use this to close my loan or invest in mutual funds. Preclosure charges for closing loan is 5%. And monthly EMI for personal loan is 21500 and housing loan is 31k. I am confused, if i have to put in mutual fund, or close loan or put in FD as emergency fund only. Please advise

Ans: Hi Shaks,

Your query will resonate with many working professionals.

First and foremost, please check/calculate if you have capital gains arising out of the sale of your current flat. This is important for tax implication and will also help make your decision for utilizing the funds.

Lets assume you have some capital gains from this sale, then you can again have to confirm if the capital gains can be utilized without paying tax on it - this is possible if you have purchased the new flat within the last 1 year. If so, then you can utilize/adjust the capital gains towards payments made for the new flat and save tax on it. If you have purchased the new flat earlier than the last 1 year, then you have 2 options - pay tax on the capital gains and then use the funds as you wish OR invest the capital gains amount in NHAI bonds (locked) for the next 5 years (pay tax only on the interest earned).

Once you have sorted the above, you will know what is the amount in hand to make your decision, so lets dive into it.
You have a loan of 60 Lacs and you can manage the EMI from your salaries. Over the next 6-7 years, your salary will also see an increment of approx 7-8% annually, so I suggest you utilize this excess amount each year to prepay/topup your EMI payments. This will help reduce the loan burden over time. At the time of retirement, your loan outstanding can be paid with available options at that time.
You mentioned PPF as an option - I would suggest you do not utilize PPF amount towards this loan closure. The reason is PPF is a completely tax exempt asset and can be utilized well towards retirement income. Of course depends on how much you have accumulated in PPF.

So lets now consider paying the loan amount with the sale proceeds of the current flat. You have a loan today (assuming interest rate applicable is 8-8.5%), which you can manage and you are keen to continue it till retirement, so also recommend you do so. Keep the sale proceed amount available for investment and wealth creation as there are opportunities that can generate returns at a same rate (conservative options) and higher returns (with a slightly higher risk associated).

As you do not have any major liability which is outstanding or cannot be managed, and also you are investing 90k per month in Mutual funds, you can consider wealth creation options for the sale amount available.
PMS is an option but I feel its risks will out weigh the returns in the time frame you have, unless you have a known and trust-worthy option you want to consider.
As you are looking to retire early, at age 50, you should target to create a corpus that will sustain your retirement life (consider at least 30 years post retirement) and your child's education requirements.
Hence my recommendation would be to invest in Mutual Funds and continue with your PPF until retirement. A well constructed portfolio to create a retirement corpus and your child's education requirements would be required.

You can consult a Certified Financial Planner to help you with this plan. They can guide you with your Investments and Retirement planning and provide options to consider and provide advise on risk management (Insurance requirements).

Thanks & Regards
Janak Patel
Certified Financial Planner.

Ans: Hi,

Redeeming your investments to prepay home loan is not a good idea. But in your case your total EMIs are more than 50% of your monthly income which is not at all recommended.
Try to close jewel loan if possible as the amount is less than that of the home loan.
Preclosing jewel loan would mean lesser EMI per month. And you can start investing the EMI of Jewel loan - Rs. 12500 towards your mutual fund portfolio.

Also start building an emergency fund of 6 months of your expenses and have ample health & life insurance.

You can consult a professional Certified Financial Planner - a CFP to know which funds to invest in. A CFP will guide you with exact funds to invest in keeping in mind your age, requirements, financial goals and risk profile.

Best Regards,
Reetika Sharma, Certified Financial Planner
https://www.instagram.com/cfpreetika/