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36-Year-Old with Home Loan, Seeking Investment Advice

Ramalingam

Ramalingam Kalirajan  |8270 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Jan 29, 2025

Ramalingam Kalirajan has over 23 years of experience in mutual funds and financial planning.
He has an MBA in finance from the University of Madras and is a certified financial planner.
He is the director and chief financial planner at Holistic Investment, a Chennai-based firm that offers financial planning and wealth management advice.... more
Asked by Anonymous - Jan 24, 2025Hindi
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I am 36 years old with two kids 3.75 years old and 1.25 year old. I have outstanding home loan of 24 lakh. I have mutual fund holding of 9 lakh and 3 lakh in equity. I don't have other savings. My monthly salary is 1.8 lakh and home loan emi is 55k/month and other expenses are 50k/month. I intent to pay off my home loan entirely by April 2025. And then save and focus on purchasing other real estate property. Request you to advise if I should pay off current home loan and then invest in second ( given opportunity cost of rising real estates ) or should I keep current emi and take additional loan to purchase second property as 24 lakh rupees would not be enough for second property.

Ans: Assessing Your Current Financial Situation
You are 36 years old with two young kids.

Your monthly salary is Rs. 1.8 lakh.

Home loan EMI is Rs. 55,000 per month.

Other monthly expenses are Rs. 50,000.

Your current assets include Rs. 9 lakh in mutual funds and Rs. 3 lakh in equity.

No other savings apart from these investments.

You plan to fully repay your Rs. 24 lakh home loan by April 2025.

You are considering investing in another real estate property.

You are evaluating whether to pay off your current home loan first or take an additional loan.

Evaluating Home Loan Repayment
Paying off your home loan will free up Rs. 55,000 per month.

This can increase your savings and investment capacity.

However, prepaying the loan reduces liquidity, which is important for financial security.

Home loan interest rates are lower than potential investment returns from mutual funds.

Instead of full prepayment, partial repayment with continued investment may be better.

Assessing your loan’s interest rate versus expected returns is essential.

Managing Your Cash Flow and Investments
After EMI and expenses, you have Rs. 75,000 surplus per month.

With no emergency savings, all surplus going into loan repayment is risky.

Maintaining liquidity through an emergency fund is crucial.

Investing part of the surplus in mutual funds can create better long-term returns.

A balanced approach between loan prepayment and investment can be more beneficial.

Risks of Purchasing a Second Property
Real estate is illiquid and requires significant investment.

Rental yields are generally low, offering about 2-3% annually.

Capital appreciation is uncertain and depends on market conditions.

Maintenance, taxes, and potential vacancies add to costs.

If property prices fall, you may face financial stress with a higher loan burden.

Opportunity Cost of Investing in Real Estate
Investing in equity mutual funds offers better long-term returns.

You can achieve financial freedom faster through diversified investments.

Real estate locks in a large amount of money with slow growth.

Liquidity is lower compared to mutual funds or fixed-income instruments.

Recommended Financial Strategy
1. Build an Emergency Fund
Keep at least 6-12 months of expenses in liquid funds.

This ensures financial security and avoids forced withdrawals from investments.

2. Balance Loan Repayment and Investments
Instead of full prepayment, allocate some surplus towards investments.

Partial prepayment can reduce interest burden without affecting liquidity.

Continue investing in mutual funds for long-term wealth creation.

3. Avoid Purchasing Another Property
With limited savings and liquidity, another property will increase financial risk.

A second home loan will add EMI burden and reduce investment potential.

Diversifying into equity and fixed-income investments is a better approach.

Real estate investment limits flexibility in case of financial emergencies.

4. Strengthen Your Investment Portfolio
Increase SIP contributions in mutual funds to build long-term wealth.

Focus on a mix of large-cap, mid-cap, and flexi-cap funds for diversification.

Invest in debt funds or fixed-income instruments for stability.

Ensure a proper asset allocation based on risk tolerance and goals.

5. Secure Your Family’s Future
Ensure you have adequate term life insurance to protect your family.

Health insurance for yourself, spouse, and kids is necessary.

Create a financial plan for your children’s education and future needs.

Finally
Paying off your home loan is beneficial but should not drain liquidity.

Investing in mutual funds offers better flexibility and growth.

A second property will increase financial stress and limit investment potential.

Maintaining a balanced approach ensures financial stability and long-term wealth creation.

Prioritize an emergency fund, investments, and financial security before taking new liabilities.

Best Regards,

K. Ramalingam, MBA, CFP

Chief Financial Planner

www.holisticinvestment.in
https://www.youtube.com/@HolisticInvestment
DISCLAIMER: The content of this post by the expert is the personal view of the rediffGURU. Users are advised to pursue the information provided by the rediffGURU only as a source of information to be as a point of reference and to rely on their own judgement when making a decision.
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Ramalingam

Ramalingam Kalirajan  |8270 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Apr 22, 2025

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Sir, I am 45 years old and want to invest in equity mutual funds. I have time horizon of 10 years . Can you suggest me some good funds in large cap category, IT sector theme fund, 1 or 2 small/midcap funds or any other fund you think would be good for long term. I want to start SIP of Rs 40000/- across 4 mutual funds.
Ans: Your intent to invest Rs 40,000 per month in equity mutual funds for 10 years is a strong move.

Your fund choices across large-cap, IT sector, and mid/small-cap categories are sensible.

Let’s look at how to structure this investment efficiently.

Investment Objective Assessment

You have a long-term vision.

Ten years is a healthy horizon for equity.

SIP is the right approach.

Rs 40,000 monthly is a good contribution.

Your Ideal Asset Allocation Strategy

Diversify across categories.

Blend large-cap, sectoral, and mid/small-cap funds.

Avoid putting too much in one theme.

This lowers risk and boosts consistency.

Large-Cap Mutual Fund (Rs 14,000/month)

These funds invest in stable, top companies.

Ideal for long-term wealth growth.

Less volatile than mid/small-cap funds.

Good for capital preservation with growth.

IT Sector Fund (Rs 6,000/month)

IT sector can give high returns.

But it’s highly cyclical and sector-dependent.

Limit allocation to protect from volatility.

Use as a return booster, not a core.

Mid and Small-Cap Funds (Rs 14,000/month)

These funds carry high growth potential.

But they are more volatile and risky.

Suitable for your long-term horizon.

Split the allocation between mid and small caps.

Keep an eye on market trends regularly.

Flexi Cap or Multi Cap Fund (Rs 6,000/month)

This gives you market-wide exposure.

Fund manager picks across market segments.

Offers balance and flexibility in returns.

Helps when market cycles shift.

Avoid Direct Mutual Funds for Long-Term SIPs

Direct funds miss advisor insights.

You might make emotional, untimely exits.

They lack personalisation and professional guidance.

Regular plans via a CFP-MFD give strategy support.

Expert monitoring helps long-term discipline.

Stay Away from Index Funds

Index funds don’t beat the market.

They lack fund manager expertise.

No downside protection in falling markets.

Actively managed funds aim to outperform indices.

They adapt during market changes.

Review Your Plan Regularly

Review performance every year.

Rebalance based on life changes.

Switch underperforming funds if needed.

A Certified Financial Planner will guide you.

Monitoring is as important as starting.

Taxation Aspects You Must Know

Equity mutual funds have two tax rules.

Long-term gains above Rs 1.25 lakh: taxed at 12.5%.

Short-term gains: taxed at 20%.

Holding for 10 years is tax efficient.

Stay invested to maximise post-tax returns.

Emergency Fund Planning Before SIPs

Keep at least 6 months of expenses saved.

Don’t invest this in mutual funds.

Use liquid funds or bank deposits.

This protects your SIPs during emergencies.

Systematic Withdrawal Plan Later

After 10 years, use SWP for income.

It gives tax-efficient regular withdrawals.

Avoid lump sum exits.

Plan withdrawal strategy 1-2 years before maturity.

Should You Include Sectoral Funds Beyond IT?

Sectoral funds are risky.

Don’t add too many of them.

You already plan IT sector exposure.

Focus more on diversified equity.

This improves overall stability.

Insurance and Health Coverage Are Essential

Review your term plan now.

Make sure it covers all your liabilities.

Have health cover for your family.

Don’t rely only on employer policy.

Your SIP Distribution Suggestion (Rs 40,000)

Large Cap Fund: Rs 14,000

IT Sector Fund: Rs 6,000

Mid Cap Fund: Rs 7,000

Small Cap Fund: Rs 7,000

Flexi or Multi Cap Fund: Rs 6,000

Strategy to Add More SIPs Yearly

Increase SIP by 10% annually.

This boosts compounding significantly.

You’ll reach bigger goals faster.

Link SIP increase to your salary hike.

Final Insights

Your investment plan is smart and timely.

Your SIP amount and time horizon are ideal.

Diversify smartly across fund types.

Avoid direct plans; take regular funds via CFP.

Stay away from index funds and too many sector bets.

Review your plan yearly with your Certified Financial Planner.

Tax efficiency and goal focus are key to success.

Your long-term wealth is built step by step.

A clear path and steady discipline will help you achieve it.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

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

...Read more

DISCLAIMER: The content of this post by the expert is the personal view of the rediffGURU. Investment in securities market are subject to market risks. Read all the related document carefully before investing. The securities quoted are for illustration only and are not recommendatory. Users are advised to pursue the information provided by the rediffGURU only as a source of information and as a point of reference and to rely on their own judgement when making a decision. RediffGURUS is an intermediary as per India's Information Technology Act.

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