I am 38 years old and self-employed, earning an average of 1.8 to 2 lakhs per month. I have a home loan of 44 lakhs (EMI is 46,000, tenure 15 years). There is no other liabilities. My investments include 11 lakhs in mutual funds, 3 lakhs in fixed...

I am 38 years old and self-employed, earning an average of 1.8 to 2 lakhs per month. I have a home loan of 44 lakhs (EMI is 46,000, tenure 15 years). There is no other liabilities. My investments include 11 lakhs in mutual funds, 3 lakhs in fixed deposits, and 1.5 lakh in gold. Should I focus on prepaying the home loan given my irregular income, or keep my investments intact and continue with EMIs?

Ans: You are doing quite well, especially with your investments and controlled liabilities. Your financial discipline is truly appreciable.

You are 38, self-employed, with Rs.1.8 to 2 lakhs monthly income.
Your current home loan is Rs.44 lakhs with EMI of Rs.46,000 for 15 years.
You have Rs.11 lakhs in mutual funds, Rs.3 lakhs in FDs, and Rs.1.5 lakhs in gold.
Your income is irregular, but you have no other liabilities.

Let us now do a 360-degree evaluation of whether to prepay the loan or stay invested.

Step-by-Step Financial Assessment
1. Evaluate the Stability of Your Income First
You earn between Rs.1.8 to Rs.2 lakhs per month.

But income is irregular. That needs caution.

Loan EMI is Rs.46,000 — about 25% of your average income.

If income drops in any month, EMI pressure will increase.

So we must first ensure EMI is always affordable, without stress.

Hence, liquidity is more important for you right now than aggressive loan prepayment.

2. Evaluate Your Emergency Reserve
You have Rs.3 lakhs in FD and Rs.1.5 lakhs in gold.

That makes it Rs.4.5 lakhs total liquid safety.

Your EMI is Rs.46,000, and personal expenses will also be there.

Ideal emergency fund for you = 6 to 9 months of expenses + EMI.

That is around Rs.6 to Rs.8 lakhs minimum.

So current emergency fund is slightly lower than ideal.

Please don’t use this for loan prepayment now.

3. Assess the Role of Mutual Funds
You have Rs.11 lakhs in mutual funds. That’s a solid step.

Now let’s assess whether to redeem this and prepay loan.

Should You Redeem Mutual Funds to Prepay?
Mutual funds, over long term, give better post-tax return than loan savings.

Loan interest is 8% to 9%, whereas mutual funds can give 11–13% in long term.

Especially if funds are equity-oriented and held for 5+ years.

You will also get capital gains tax exemption on Rs.1.25 lakhs LTCG annually.

If you redeem funds, you lose growth potential and compounding.

That hurts long-term wealth building.

So, do not redeem the entire Rs.11 lakhs in mutual funds.

4. Disadvantage of Early Loan Prepayment in Your Case
Prepaying early will reduce interest over time, yes.

But you may run into cash flow stress in slow months.

Once money is used to prepay, it cannot be taken back easily.

Liquidity once lost = flexibility lost.

Also, income tax benefit under Section 24(b) gets reduced if loan balance drops.

So it’s better to maintain balance between repayment and investment.

5. Best Strategy for You – A Balanced Approach
Let’s now craft the best plan for you.

Maintain Strong Liquidity First
Keep FD and gold untouched.

Increase emergency fund to at least Rs.6–Rs.7 lakhs.

For that, set aside extra Rs.2.5–Rs.3 lakhs from savings over time.

This makes your EMI safe even in low-income months.

Continue Your Mutual Fund SIPs Without Stopping
SIPs give long-term growth and beat loan interest in most cases.

Don’t stop mutual fund investments to prepay loan.

Stay invested. Let wealth compound.

Start Small and Periodic Prepayments
Don’t do bulk prepayment now. Do systematic small prepayments.

For example, Rs.25,000 to Rs.50,000 extra every 3–4 months.

When income is higher, use that surplus to prepay in parts.

Target 1–2 bulk part-payments per year.

This reduces tenure and interest slowly, without affecting liquidity.

Track Your Loan Amortisation Every 6 Months
Use netbanking or get a fresh loan statement every 6 months.

Check how each prepayment is reducing principal.

Adjust your strategy accordingly.

Avoid One-Time Full Prepayment
That would kill your long-term investment compounding.

Also removes your income tax benefit under Section 24(b).

Stay flexible. You are self-employed.

You need cash buffers more than salaried people.

Final Insights
Do not do bulk home loan prepayment from mutual funds now.

Keep SIPs going and maintain your compounding.

Grow your emergency fund to Rs.6–7 lakhs minimum.

Use surplus months to make small part-payments towards home loan.

This protects your peace and builds wealth at the same time.

Reassess in 2–3 years. You may be able to prepay more later.

You are already in a good financial position. Your thoughtful approach is praiseworthy.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

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

Ans: You have managed your life responsibly at a young age. Owning a home, maintaining mutual fund investments, and providing for your family show discipline and focus. At 35, your income level is strong, and your financial situation can be stabilized with a few practical adjustments. Your concern about managing two loans while raising a child is valid, and it can be addressed systematically.

» Understanding Your Current Financial Situation

Your monthly family income is around Rs 2.4 lakh. Your total EMIs come to Rs 1 lakh, which means almost 42% of your income goes to debt repayment. That is a little high for comfort, especially with a one-year-old child and rising household expenses.

Your home loan balance is Rs 78 lakh with an EMI of Rs 82,000. The personal loan of Rs 8 lakh has an EMI of Rs 18,000. Personal loans generally carry high interest rates, while home loans are lower and offer tax benefits.

You also have mutual funds worth Rs 25 lakh, which gives you good liquidity. You are in a better position than many young families because you have savings available. The challenge is to use them wisely.

» Evaluating Loan Burden and Cash Flow Pressure

The total monthly outflow of Rs 1 lakh on EMIs is heavy for your stage of life. You have a growing child, family expenses, and the need to build future savings. Your wife’s income of Rs 60,000 helps, but you still face pressure on monthly cash flow.

It is important to reduce high-interest debt first. Personal loans typically carry 13%–16% interest. Home loans are around 8%–9%. If you continue both, a large portion of your income will go towards interest for several years.

Hence, tackling the personal loan first will reduce your burden meaningfully. Once that is cleared, your cash flow will improve by Rs 18,000 per month immediately. This can provide breathing space and allow you to manage household needs comfortably.

» Should You Use Mutual Funds to Prepay Personal Loan?

Yes, it is practical and wise to use part of your mutual fund corpus to close your personal loan. The logic is simple. The post-tax return from mutual funds (especially debt or hybrid) is usually lower than the interest you are paying on the personal loan.

For example, if your mutual funds are earning around 9% average annual return, but your personal loan costs 14%, you are losing value. Paying off that personal loan gives you a risk-free and guaranteed return equal to the loan interest you save.

You can use around Rs 8–9 lakh from your Rs 25 lakh mutual fund corpus to close the personal loan fully. Keep the remaining Rs 16–17 lakh invested for your long-term goals and emergencies.

By doing this, you free Rs 18,000 every month immediately. That is like earning an extra Rs 2.16 lakh per year without taking risk.

» Why Not Use Mutual Funds to Prepay Home Loan Now

Do not use mutual funds to prepay the home loan at this stage. Home loans are long-term, lower-cost loans that offer income tax benefits on both interest and principal repayment.

Also, housing loan interest after tax adjustment becomes effectively cheaper, especially if you fall in higher tax bracket. It is better to keep investing in mutual funds rather than repaying a low-interest, long-duration loan early.

If you use mutual funds to close the home loan, you will lose your emergency cushion and the power of compounding. Continue paying the home loan EMIs regularly. Focus on building future savings and liquidity instead.

» Reviewing Mutual Fund Portfolio

Before redeeming Rs 8–9 lakh to clear your personal loan, check your mutual fund portfolio composition. If you have both equity and debt funds, withdraw primarily from the debt or hybrid portions first.

Equity funds have long-term growth potential. It is better to preserve them for future goals like your child’s education or your retirement.

Also, review your overall mutual fund mix with a Certified Financial Planner. Avoid direct funds, even though they look cheaper. Regular funds through a CFP with MFD credential provide professional review, rebalancing, and ongoing guidance. This helps you stay aligned with your goals.

Avoid index funds too, as they only track an index and cannot adjust in market corrections. Actively managed funds with experienced fund managers provide flexibility and better downside protection.

» Setting Up an Emergency Fund

After closing the personal loan, maintain an emergency fund of at least six months of total expenses. This should include EMIs, household costs, and childcare expenses.

You can park this in liquid mutual funds or short-term bank deposits. For your family, this fund should be around Rs 5–6 lakh. This protects you from sudden financial shocks like medical emergencies or temporary job issues.

Do not invest this emergency fund in equity or long-term funds. It should stay fully accessible.

» Managing Monthly Budget and Lifestyle

Your fixed EMI of Rs 1 lakh will reduce to Rs 82,000 after closing the personal loan. With a household income of Rs 2.4 lakh, your EMI-to-income ratio will drop to about 34%. That is comfortable and safe.

Now review your monthly expenses. Create three categories:

Essentials (food, bills, baby needs, EMIs)

Comfort (subscriptions, dining, non-essential items)

Goals (savings, insurance, child education fund)

Allocate at least 10% of your income for savings even after EMIs. Keep growing your mutual fund investments monthly, even if through small SIPs. The consistency matters more than the amount.

» Importance of Insurance Protection

With high responsibilities and a home loan, you must secure your family with proper insurance. Take a term life insurance cover of at least Rs 1.5 crore for yourself. This ensures your wife and child can manage the home loan if anything happens to you.

Also, take family health insurance that covers your wife and baby adequately. Employer insurance may not be enough. A separate personal health plan adds safety.

Do not buy investment-linked insurance like ULIPs or endowment plans. They are expensive and give low returns. Always keep insurance and investment separate.

» Planning Future Goals

After stabilizing your current cash flow, you can refocus on long-term goals. Your child’s education and your retirement will be the next milestones.

You already have mutual funds worth Rs 16–17 lakh after using some for loan repayment. You can start new SIPs with part of your monthly surplus later. Use diversified equity mutual funds for long-term wealth creation.

Avoid overexposure to small or midcap funds. Keep a mix of large-cap and hybrid funds for balanced growth.

Revisit your goals with your Certified Financial Planner once every year. Adjust your asset mix according to your age and income growth.

» Tax Efficiency Planning

Your home loan gives you tax benefits under Section 80C for principal repayment and Section 24(b) for interest up to Rs 2 lakh per year. Continue to claim them fully.

Your mutual funds will give long-term capital gains advantage if held for more than one year. Under new rules, LTCG above Rs 1.25 lakh is taxed at 12.5%. Short-term gains are taxed at 20%.

When redeeming to close your personal loan, check which mutual funds have completed one year to reduce tax impact. Redeem those first to minimize short-term gain taxation.

» Psychological Relief and Family Stability

Debt creates stress, especially when you have a young family. Clearing your personal loan gives immediate emotional relief. That peace of mind is also a financial benefit because it helps you plan calmly for future goals.

Once the personal loan is cleared, focus on family comfort and savings growth. Keep your financial communication open with your spouse. Together, you can handle any temporary financial strain with clarity and confidence.

» Gradual Improvement Plan

After closing the personal loan and setting up your emergency fund, you can slowly increase your monthly SIPs as your salary grows. This ensures your wealth builds steadily even with EMIs.

You can also plan to make partial prepayments on your home loan every two to three years if you receive bonuses or incentives. That will shorten your loan tenure and save interest.

But do not rush to prepay at the cost of losing liquidity. Maintain balance between safety, growth, and debt reduction.

» Managing Lifestyle Inflation

As your income rises, your expenses will also rise naturally. Control lifestyle inflation consciously. Avoid taking new loans for cars, gadgets, or vacations. Prefer saving first, spending later.

If you maintain this discipline for the next five years, your financial independence will grow very fast. Your family will have security, and your child’s future will remain protected.

» Finally

Your decision should be simple: use part of your mutual fund corpus to close the personal loan immediately. Continue paying your home loan normally. Maintain an emergency fund, review insurance coverage, and restart systematic investments once cash flow stabilizes.

This approach will improve your monthly comfort, reduce debt pressure, and strengthen your family’s long-term security. You are already doing many things right; you just need to prioritize debt reduction and liquidity now.

Best Regards,

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

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