I'm 36, earn 3L: Prepay 10L loan or invest in equity?

Hi I am 36 years old with monthly 3L income. I have 10L outstanding home loan pending with 34 month remaining. EMI is of 38000 per month. I have MF investment of 32L, PF of 39L, ppf balance of 19.5L, FD of 12L, share investment of 10L, RBI bond investment of 32L, gold of 26L, NPS of 16L. Should i prepay my home loan or should i invest the amount some where in equity?

Ans: Your disciplined savings and investments are impressive. Choosing between prepaying your home loan or investing in equity is an important decision. Let’s explore this carefully from a 360-degree perspective.

Understanding Your Current Financial Position
Age: 36 years

Monthly Income: Rs. 3,00,000

Home Loan Outstanding: Rs. 10 lakhs

EMI: Rs. 38,000 for 34 months

Investments:

Mutual Funds: Rs. 32 lakhs

Provident Fund: Rs. 39 lakhs

PPF: Rs. 19.5 lakhs

Fixed Deposits: Rs. 12 lakhs

Shares: Rs. 10 lakhs

RBI Bonds: Rs. 32 lakhs

Gold: Rs. 26 lakhs

NPS: Rs. 16 lakhs

You have a good mix of assets with balanced debt and equity investments. Your loan tenure is less than 3 years, which is relatively short.

Benefits of Prepaying Your Home Loan
Reduces Interest Outflow: Early repayment cuts down total interest paid.

Improves Debt-Free Status: Paying off loan early gives peace of mind.

Enhances Cash Flow Post-Tenure: After prepayment, you free up Rs. 38,000 monthly.

Boosts Credit Score: Clearing loan early positively impacts creditworthiness.

However,

Interest Rate on Home Loan: If it is low (around 7% or less), benefits reduce.

Inflation Effect: Loan EMI is fixed and inflation reduces real cost over time.

Liquidity Impact: Using liquid assets for prepayment can reduce emergency funds.

Advantages of Continuing Investments in Equity
Potential for Higher Returns: Equities can outperform loan interest over time.

Compounding Benefit: Staying invested builds wealth with power of compounding.

Flexibility: Investments can be partially liquidated if needed.

Tax Benefits: Equity investments held long-term have favourable tax treatment.

On the other hand,

Market Risk: Equity returns fluctuate and carry volatility.

Emotional Pressure: Loan repayments give fixed discipline; investments can tempt premature withdrawal.

Comparative Assessment of Prepayment Vs Equity Investment
Interest Rate vs Expected Returns: Compare your home loan rate and expected equity returns.

Time Horizon: With 34 months left, loan payoff is near. Equity needs longer horizon.

Risk Appetite: Comfort with market volatility influences choice towards equity.

Liquidity Needs: Ensure emergency funds and liquidity are intact before prepaying loan.

Tax Considerations
Home Loan Interest: You can claim deductions on interest paid up to Rs. 2 lakhs per year.

Principal Repayment: Eligible for deduction under specified sections.

Capital Gains: Equity investments are subject to tax on gains above Rs. 1.25 lakh at 12.5%.

Debt Investments: Taxed as per income tax slab.

Optimizing these helps reduce tax outflow legally.

Impact on Your Financial Goals
Financial Independence: Prepaying loan helps reduce liabilities sooner.

Wealth Creation: Staying invested in equity helps build corpus for future goals.

Risk Management: Diversify investments to balance risk and returns.

Emergency Fund: Maintain at least 6 months of expenses in liquid form.

Suggested 360-Degree Strategy
Continue EMI Payments: Maintain regular EMI to benefit from tax deductions and discipline.

Avoid Large Prepayment: Since tenure is short and interest likely low, avoid big prepayment now.

Increase Equity SIPs: Use surplus funds to invest regularly in actively managed equity funds.

Review Asset Allocation: Balance equity and debt as per your risk tolerance.

Monitor Loan Interest Rate: If rates increase, consider partial prepayment.

Maintain Liquidity: Keep fixed deposits and liquid funds untouched as emergency corpus.

Health and Life Insurance: Ensure adequate coverage to protect family financially.

Estate Planning: Draft a will for smooth transfer of assets.

Risks of Index Funds and Direct Funds in Your Context
Index Funds: They follow the market blindly without active management.

Lack of Flexibility: Cannot adjust to market changes or company performance.

Potential Lower Returns: Active fund managers can capitalize on market inefficiencies.

Direct Funds: Require personal expertise to choose and monitor.

Limited Guidance: You lose the benefit of professional advice and regular monitoring.

MFD Regular Plans: Certified Financial Planners offer professional fund management.

Final Insights
Prepaying home loan early is less beneficial given short tenure.

Invest surplus funds in actively managed equity funds with disciplined SIPs.

Maintain liquidity and emergency funds for financial security.

Review your portfolio annually to keep it aligned with your goals.

Proper insurance and estate planning complete your financial wellness.

Your financial foundation is strong. Small tweaks and focused approach can help grow wealth steadily.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

https://www.youtube.com/@HolisticInvestment

Ans: Your financial standing is strong. Let’s now structure a 360-degree investment and loan strategy.

Cash Flow Review and Surplus Allocation

You earn Rs. 2.5L per month. That’s quite healthy. Appreciate your discipline.

After expenses, check how much you save monthly. Let us call it your surplus.

Use this surplus to build future wealth and secure your financial goals.

From your assets and loan, I assume your monthly EMI could be around Rs. 30,000 to Rs. 35,000.

That leaves you with a lot of investable surplus. You must use this power well.

Home Loan Prepayment – Good or Delay?

You have Rs. 33L loan left for 15 years. That is long.

But interest paid in initial years is always higher than principal.

You also have Rs. 20L in bank and Rs. 20L in FD.

These are earning much lesser than what you're paying in loan interest.

If your home loan interest is above 8%, then prepayment is worth considering.

Still, don’t rush to close full loan. Keep some funds for emergencies and investments.

Ideal is to partly prepay now. Maybe Rs. 10L to Rs. 15L.

That will reduce interest burden and loan tenure both.

Continue regular EMIs. Use future bonuses or increments for further prepayment.

Emergency Fund Strategy

Out of Rs. 20L in bank and Rs. 20L in FD, earmark Rs. 6L to Rs. 8L.

This will act as emergency fund for family’s medical and job loss cover.

Put 3 months’ expenses in savings account. Keep balance in liquid or ultra short debt funds.

Don't touch this fund unless it's real emergency.

Re-evaluate Fixed Deposits

FD gives low returns and is taxable as per your tax slab.

You are in high income slab. So, net FD returns are very low.

Don’t keep Rs. 20L in FD. It’s hurting wealth growth.

Use FD only for near-term needs like a goal in 1 to 3 years.

Rest of FD should be moved to better performing investment options.

Mutual Fund Portfolio – Strengthen This Block

You have Rs. 5L in mutual funds. That is a good start. Appreciate your effort.

But this needs more attention and proper structuring.

Ensure funds are diversified across large, flexi cap, mid cap and hybrid funds.

Use only regular mutual funds through an MFD guided by a Certified Financial Planner.

Avoid direct plans. They lack guidance, review, and behavioural coaching.

Many investors pick random direct funds and lose compounding power.

A good CFP with MFD support helps with long-term discipline and fund switching strategy.

Why You Must Avoid Index Funds and ETFs

Index funds blindly copy market. They can’t avoid poor performing stocks.

No active decision-making. No alpha generation. No downside protection.

In falling markets, index funds fall more. Active funds can reduce losses.

Also, index funds lack flexibility. They follow index weight, not market conditions.

Best option is active mutual funds. Your fund manager takes active calls.

Active funds have historically beaten passive ones in India in most market phases.

Gold Bonds – Hold and Don’t Add More

You have Rs. 3L in gold bonds. That’s fine for diversification.

Don’t add more unless you have a specific future goal like daughter’s marriage.

Gold is good hedge, but not a return generator. Just hold what you have.

Don’t consider gold for monthly investments. It doesn’t support long-term goals well.

PPF – Keep Contributing, but Don’t Overdo

You already have Rs. 13L in PPF. That’s wonderful.

It’s safe, tax-free and long-term. Helps in retirement planning.

But PPF is illiquid. And max Rs. 1.5L allowed per year.

Use it to full limit yearly. But don’t put more surplus here.

Mutual funds should take higher share for long-term wealth.

PPF and MF together balance risk and returns nicely.

Build Monthly SIP Discipline

With Rs. 2.5L monthly salary, you can easily do Rs. 50k to Rs. 75k SIP.

Spread this into 4-5 actively managed regular mutual funds.

Use large cap, flexi cap, mid cap, and one hybrid or balanced advantage fund.

Select fund categories as per your goals and risk comfort.

SIPs must continue for 10 years or more to create real wealth.

Avoid frequent pausing or switching. Compounding needs patience.

Tax Planning Insight

Use your PPF, term insurance and mutual fund ELSS for tax savings.

ELSS is best among 80C options. Has lock-in, but also gives equity returns.

Avoid ULIPs and endowment plans. They mix insurance and investment poorly.

As a rule, buy insurance only for risk cover. Investment should stay separate.

Also, understand mutual fund capital gains tax rules.

New Tax Rules on Mutual Funds – You Must Know This

For equity mutual funds, long-term capital gains above Rs. 1.25L is taxed at 12.5%.

Short-term capital gains on equity mutual funds are taxed at 20%.

For debt mutual funds, all gains are taxed as per your income slab.

Track your investment holding periods. Plan redemptions smartly with a CFP.

Don’t do random withdrawals. It can create avoidable tax and return loss.

Future Goal Planning – Build a Roadmap

List out your major goals – child’s education, retirement, travel, marriage, etc.

Assign time frame and target value for each goal.

Map each goal with one or two specific mutual funds.

Review this strategy once every 6 months. Make changes only when needed.

Don’t mix all goals in one investment. That creates confusion later.

A Certified Financial Planner can help with this mapping and review.

Insurance Check – Very Important

Ensure you have term life insurance of at least 15 times your annual income.

If not, take it right away. Only term insurance. No endowment or ULIP.

You must also have family floater health insurance of Rs. 15L to Rs. 20L.

Don’t rely on employer coverage alone. It ends when job ends.

Medical costs are rising fast. Proper health cover is must.

Don’t Delay a Financial Plan – Take Action Now

You are in a very strong financial position.

You have cleared most loans. You have surplus and assets. Appreciate your efforts.

Now you need right structuring and action plan. Not just savings. But long-term investing.

Delay in investing or poor asset allocation can waste compounding power.

Create a roadmap. Commit to SIPs. Trim FD. Partial loan prepay. Balance all areas.

Get help from a Certified Financial Planner. Not bank RM. Not online robo platforms.

Review everything once in 6 months with expert support.

Only then real wealth creation happens with confidence.

Final Insights

Part-prepay home loan. Not full. Keep balance for growth investing.

Restructure idle FD and bank savings into mutual funds.

Don’t touch emergency funds. Keep it separate.

Grow mutual fund portfolio with SIP discipline. Use active, regular funds. No direct, no index.

Maintain health and term insurance cover properly.

Use PPF and ELSS smartly for tax. Avoid any insurance-linked plans.

Build goal-based plan. Use certified guidance. Track, review, adjust as needed.

You have income, assets and intent. Now, give it structure and direction. That’s the missing piece.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in
https://www.youtube.com/@HolisticInvestment

Ans: You have built a strong base. You have raised your sons well. They live independently. You and your wife now want a peaceful and enjoyable retired life. You have created wealth with discipline. You have no home loan. You live in your own house. This gives strength to your cash flow. Your savings across equity, mutual funds, and bank deposits show good clarity. I appreciate your careful preparation. You deserve a happy retired life with travel and comfort.

» Your Present Position
Your current financial position looks very steady. You hold direct equity of around Rs 2.5 Cr. You hold equity mutual funds worth Rs 50 lakh. You also have Rs 50 lakh in bank deposits and other secured savings. Your two rental properties add more comfort. You earn around Rs 40,000 per month from rent. You also live in your owned house in Delhi NCR. So you have no rent expense.

Your total net worth crosses Rs 5.5 Cr easily. This gives you a strong base for your retired life. You plan to spend around Rs 24 lakh per year for all expenses, including travel. This is reasonable for your lifestyle. Your savings can support this if planned well. You have built more than the minimum needed for a comfortable retired life.

» Your Key Strengths
You already enjoy many strengths. These strengths hold your plan together.

You have zero housing loan.

You have stable rental income.

You have children living independently.

You have a balanced mix of assets.

You have built wealth with discipline.

You have clear goals for travel and lifestyle.

You have strong liquidity with Rs 50 lakh in bank and secured savings.

These strengths reduce risk. They support a smooth retired life with less stress. They also help you handle inflation and medical costs better.

» Your Cash Flow Needs
Your yearly expense is around Rs 24 lakh. This includes travel, which is your main dream for retired life. A couple at your stage can keep this lifestyle if the cash flow is planned well. You need cash flow clarity for the next 30 years. Retirement at 56 can extend for three decades. So your wealth must support you for a long period.

Your rental income gives you around Rs 4.8 lakh per year. This covers almost 20% of your yearly spending. This reduces pressure on your investments. The rest can come from a planned withdrawal strategy from your financial assets.

You also have Rs 50 lakh in bank deposits. This acts as liquidity buffer. You can use this buffer for short-term and medium-term needs. You also have equity exposure. This can support long-term growth.

» Risk Capacity and Risk Need
Your risk capacity is moderate to high. This is because:

You own your home.

You have rental income.

Your children are financially independent.

You have large accumulated assets.

You have enough liquidity in bank deposits.

Your risk need is also moderate. You need growth because inflation will rise. Travel costs will rise. Medical costs will increase. Your lifestyle will change with age. Your equity portion helps you beat inflation. But your equity exposure must be managed well. You should avoid sudden large withdrawals from equity at the wrong time.

Your stability allows you to keep some portion in equity even during retired life. But you should avoid excessive risk through direct equity. Direct equity carries concentration risk. A balanced mix of high-quality mutual funds is safer in retired life.

» Direct Equity Risk in Retired Life
You hold around Rs 2.5 Cr in direct equity. This brings some concerns. Direct equity needs frequent tracking. It needs research. It carries single-stock risk. One mistake may reduce your capital. In retired life, you need stability, clarity, and lower volatility.

Direct funds inside mutual funds also bring challenges. Direct funds lack personalised support. Regular plans through a Mutual Fund Distributor with a Certified Financial Planner bring guidance and strategy. Regular funds also support better tracking and behaviour management in volatile markets. In retired life, proper handholding improves long-term stability.

Many people think direct funds save cost. But the value of advisory support through a CFP gives higher net gains over long periods. Direct plans also create more confusion in asset allocation for retirees.

» Mutual Funds as a Core Support
Actively managed mutual funds remain a strong pillar. They bring professional management and risk controls. They handle market cycles better than index funds. Index funds follow the market blindly. They do not help in volatile phases. They also offer no risk protection. They cannot manage quality of stocks.

Actively managed funds deliver better selection and risk handling. A retiree benefits from such active strategy. You should avoid index funds for a long retirement plan. You should prefer strong active funds under a disciplined review with a CFP-led MFD support.

» Why Regular Plans Work Better for Retirees
Direct plans give no guidance. Retired investors often face emotional decisions. Some panic during market fall. Some withdraw heavily during market rise. This harms wealth. Regular plan under a CFP-led MFD gives a relationship. It offers disciplined rebalancing. It improves long-term returns. It protects wealth from poor behaviour.

For retirees, the difference is huge. So shifting to regular plans for the mutual fund portion will help long-term stability.

» Your Withdrawal Strategy
A planned withdrawal strategy is key for your case. You should create three layers.

Short-Term Bucket
This comes from your bank deposits. This should hold at least 18 to 24 months of expenses. You already have Rs 50 lakh. This is enough to hold your short-term cash needs. You can use this for household costs and some travel. This avoids panic selling of equity during market downturn.

Medium-Term Bucket
This bucket can stay partly in low-volatility debt funds and partly in hybrid options. This should cover your next 5 to 7 years. This helps smoothen withdrawals. It gives regular cash flow. It reduces market shocks.

Long-Term Bucket
This can stay in high-quality equity mutual funds. This bucket helps beat inflation. This bucket helps fund your travel dreams in later years. This bucket also builds buffer for medical needs.

This three-bucket strategy protects your lifestyle. It also keeps discipline and clarity.

» Handling Property and Rental Income
Your properties give Rs 40,000 monthly rental. This helps your cash flow. You should maintain the property well. You should keep some funds aside for repairs. Do not depend fully on rental growth. Rental yields remain low. But your rental income reduces pressure on your investments. So keep the rental income as a steady support, not a primary source.

You should not plan more real estate purchase. Real estate brings low returns and poor liquidity. You already own enough. Holding more can hurt flexibility in retired life.

» Planning for Medical Costs
Medical costs rise faster than inflation. You and your wife need strong health coverage. You should maintain a reliable health insurance. You should also keep a medical fund from your bank deposits. You may keep around 3 to 4 lakh per year as a buffer for medical needs. Your bank savings support this.

Health coverage reduces stress on your long-term wealth. It also avoids large withdrawals from your growth assets.

» Travel Planning
Travel is your main dream now. You can plan your travel using your short-term and medium-term buckets. You can take funds annually from your liquidity bucket. You can avoid touching long-term equity assets for travel. This approach keeps your wealth stable.

You should plan travel for the next five years with a budget. You should adjust your travel based on markets and health. Do not use entire gains of equity for travel. Keep travel budget fixed. Add small adjustments only when needed.

» Inflation and Lifestyle Stability
Inflation will impact lifestyle. At Rs 24 lakh per year today, the cost may double in 12 to 14 years. Your equity exposure helps you beat this. But you need careful rebalancing. You also need disciplined review with a CFP-led MFD. This will help you manage inflation and maintain comfort.

Your lifestyle is stable because your children live independently. So your cash flow demand stays predictable. This makes your plan sustainable.

» Longevity Risk
Retirement at 56 means you may live till 85 or 90. Your plan should cover long years. Your total net worth of around Rs 5.5 Cr to Rs 6 Cr can support this. But you need a proper drawdown strategy. Avoid high withdrawals in early years. Keep your travel budget steady.

Do not depend on one asset class. A mix of debt and equity gives comfort. Keep your bank deposits as cushion.

» Succession and Estate Planning
Since you have two sons who are settled, you can plan a clear will. Clear distribution avoids conflict. You can also assign nominees across accounts. You can also review your legal papers. This gives peace to you and your family.

» Summary of Your Retirement Readiness
Based on your assets and cash flow, you are ready to retire. You have enough wealth. You have enough liquidity. You have enough income support from rent. You also have good asset mix. With proper planning, your lifestyle is comfortable.

You can retire now. But maintain a disciplined withdrawal strategy. Shift more reliance from direct equity into professionally managed mutual funds under regular plans. Keep your liquidity strong. Review once every year with a CFP.

Your wealth can support your travel dreams for many years. You can enjoy retired life with confidence.

» Finally
Your preparation is strong. Your intentions are clear. Your lifestyle needs are reasonable. Your assets support your dreams. With a balanced plan, steady review, and mindful spending, you can enjoy a comfortable retired life with your wife. You can travel the world without fear of running out of money. You deserve this peace and joy.

Best Regards,
K. Ramalingam, MBA, CFP,
Chief Financial Planner,
www.holisticinvestment.in

https://www.youtube.com/@HolisticInvestment