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Ramalingam Kalirajan |11135 Answers |Ask -Follow

Mutual Funds, Financial Planning Expert - Answered on Jul 23, 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

Question by Gaurav on Jul 23, 2025Hindi

hi , i am 45 years old, earning abt 2.3 l/month. i have 47k emi of home loan and 25 k as sip from last 3 years. inssurance amount 60 k/year and mediclaim of abt 20k/annum. i need about 5l/year for graduation of my son from next year. i need to know that whether i continue sip or go for prepayment of home loan. which is better ?

Ans: ? Income and Expense Structure

– Your monthly income is Rs. 2.3 lakh.
– EMI is Rs. 47,000 monthly, which is about 20% of your income.
– SIP contribution is Rs. 25,000 monthly, which is close to 11%.
– Insurance premium is Rs. 60,000 annually.
– Mediclaim costs you Rs. 20,000 yearly.
– Starting next year, Rs. 5 lakh per annum is needed for son's graduation.

Your monthly surplus after EMI and SIP is around Rs. 1.58 lakh before regular expenses. This gives you decent flexibility.

? Evaluating Your Home Loan Prepayment Option

– Your loan EMI is within manageable range.
– Prepaying home loan reduces long-term interest cost.
– But home loan also gives tax benefits under Section 80C and 24(b).
– Prepaying now may reduce liquidity for other goals.
– Since education cost is near, liquidity matters more.

So prepaying home loan now is not ideal. Focus should be on maintaining cash flow.

? Importance of Continuing SIPs

– SIPs build long-term wealth through compounding.
– You already have 3 years of SIP track record.
– Market cycles may affect short-term SIP results.
– But SIPs reward discipline over longer periods.
– Pausing SIPs may break long-term compounding cycle.

Continuing SIPs ensures stability in your future goals like retirement or child’s post-graduation.

? Preparing for Upcoming Education Expense

– Rs. 5 lakh yearly will be a significant recurring expense.
– This equals about Rs. 42,000 per month.
– You must start setting aside this amount separately now.
– Use a mix of liquid funds or ultra short-term funds.
– This will give you easy access and better return than savings account.

Start a new bucket just for education cost and do not mix it with other goals.

? Reassessing Your Insurance Policies

– You spend Rs. 60,000 per year on insurance.
– Check if they are investment-cum-insurance plans.
– ULIPs or endowment plans give low return and poor flexibility.
– They should be surrendered and proceeds moved to mutual funds.

A simple term plan is better. You get high cover at low cost.

? Role of Certified Financial Planner for Holistic Review

– A Certified Financial Planner will review goals and structure.
– They look at risk, returns, taxation, and goal alignment.
– Regular reviews help ensure you stay on track.
– Mutual fund investments through a CFP give you personal guidance.
– MFDs with CFP credentials offer customised and disciplined investing.

Avoid direct mutual funds as they do not provide goal tracking or personal assistance.

? Disadvantages of Direct Mutual Funds

– Direct funds miss expert hand-holding and financial discipline.
– There's no one to help during market volatility.
– Many investors exit at wrong time without guidance.
– There’s no customisation of asset allocation.
– Long-term wealth-building needs a human expert by your side.

It is always better to invest via a mutual fund distributor with CFP credentials.

? Compare Home Loan Prepayment vs SIPs

– Home loan prepayment gives emotional relief.
– But it blocks capital which may be needed elsewhere.
– Prepayment gives fixed saving of interest.
– But mutual funds offer higher return potential over long term.
– SIPs can be aligned to your retirement or child’s future education.

Continue SIPs and do not prepay loan for now.

? Risk of Stopping SIPs Now

– Market can give best returns when least expected.
– By stopping SIPs, you may miss rally phase.
– You already built SIP momentum for 3 years.
– Breaking it now reduces long-term compounding.
– SIPs are most efficient when done uninterrupted for 10+ years.

You must stay invested through ups and downs.

? Better Use of Surplus Income

– After all fixed commitments, you still have good monthly surplus.
– Set aside Rs. 42,000 monthly for upcoming education needs.
– Keep this in short-term mutual funds for next 3–4 years.
– Do not use equity funds for near-term goals.
– Review cash flow monthly and adjust accordingly.

This gives you liquidity, growth, and peace of mind.

? Asset Allocation Strategy

– Have mix of equity and debt mutual funds for different goals.
– Equity funds for long-term goals like retirement or child’s post-grad.
– Debt or liquid funds for short-term needs like next year's college fees.
– Maintain 6 months of expenses in emergency fund.
– Avoid investing everything in one asset class.

Balanced allocation lowers risk and improves return stability.

? Education Goal Planning

– Graduation cost for your son is immediate.
– Start earmarking this separately in liquid form.
– Do not depend on equity SIPs for this.
– Withdraw from liquid funds when the need arises.
– Never break long-term SIPs for short-term need.

Tag every investment to a goal for clarity and better tracking.

? Debt Fund Taxation Rules

– For debt funds, gains are taxed as per your income slab.
– No benefit of indexation anymore.
– Yet, they offer better returns than FDs in most cases.
– Liquidity is better too compared to fixed deposits.
– They are suitable for short-to-medium goals.

Debt mutual funds should be part of every plan.

? Equity Fund Taxation Rules

– Long-term capital gains above Rs. 1.25 lakh are taxed at 12.5%.
– Short-term capital gains are taxed at 20%.
– Still, equity funds offer higher long-term post-tax returns.
– Stay invested longer to reduce taxation impact.
– Use equity only for goals beyond 5 years.

Proper tax planning improves real returns over time.

? Why Actively Managed Mutual Funds are Better

– Index funds only copy the market.
– They do not beat inflation always.
– Actively managed funds aim to outperform.
– A skilled fund manager adjusts portfolio during volatility.
– Especially in India, market inefficiencies can be captured actively.

Choose actively managed funds through a CFP.

? When to Consider Home Loan Prepayment

– If your education need is fully met.
– And surplus cash is consistently available.
– Then consider partial prepayment once a year.
– Do not use emergency funds or SIPs for this.
– Make sure your other goals are not disturbed.

It should be the last priority after all goal investments are on track.

? Goal Mapping Is Important

– Every rupee should be mapped to a goal.
– Unplanned savings often get spent.
– Prioritise education and retirement before other goals.
– Maintain proper cash flow visibility for next 3–5 years.
– Use goal-specific mutual funds advised by CFP.

Structure gives clarity and confidence.

? Final Insights

– Do not stop your SIPs. They are critical for long-term goals.
– Do not prepay home loan now. Liquidity is more important today.
– Start saving separately for your son’s education now.
– Check if your insurance policies are investment-based. If yes, surrender and reinvest.
– Avoid direct mutual funds. Invest via MFDs with CFP guidance for personalised tracking.
– Use actively managed mutual funds over index funds for better performance.
– Maintain asset mix between equity and debt based on goal timelines.
– Ensure 360-degree planning across all your financial priorities.

Best Regards,
K. Ramalingam, MBA, CFP,
Chief Financial Planner,
www.holisticinvestment.in
https://www.youtube.com/@HolisticInvestment

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