Home > Money > Question
Need Expert Advice?Our Gurus Can Help

Should I use my LIC maturity to pay off my home loan or invest it?

Milind

Milind Vadjikar  |1190 Answers  |Ask -

Insurance, Stocks, MF, PF Expert - Answered on Dec 13, 2024

Milind Vadjikar is an independent MF distributor registered with Association of Mutual Funds in India (AMFI) and a retirement financial planning advisor registered with Pension Fund Regulatory and Development Authority (PFRDA).
He has a mechanical engineering degree from Government Engineering College, Sambhajinagar, and an MBA in international business from the Symbiosis Institute of Business Management, Pune.
With over 16 years of experience in stock investments, and over six year experience in investment guidance and support, he believes that balanced asset allocation and goal-focused disciplined investing is the key to achieving investor goals.... more
SATISH Question by SATISH on Dec 13, 2024Hindi
Listen
Money

I have 6 Lak Home loan balance with 40 K EMI for 2 years balance tenure. I will get 10 L from LIC after 4 months, should I set off my home loan and park balance in ICICI blue chip fund and 40 K SIP. Or should I continue with EMI and put all 10 L in large cap fund? Please advise. My age is 50

Ans: Hello;

As you approach close to your retirement all loans should be preferably cleared.

Therefore settling home loan and then making balance lumpsum & SIP investment would be most suitable approach.

Best wishes;
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.
Money

You may like to see similar questions and answers below

Nitin

Nitin Narkhede  |63 Answers  |Ask -

MF, PF Expert - Answered on Sep 15, 2024

Asked by Anonymous - Sep 14, 2024Hindi
Listen
Money
Hi Sir - I'm 35 years. Both myself and a better half are working with a monthly income of 3.65L together (2.8L mine + 85K wife's). We have a 5 year old male kid. We have a SBI max gain home loan account with a debt of 12.65L and a parked amount of 26.5L apart from the EMI paid so far from previous 5 years. No EMI on car purchased. EPF ~29L, PPF started for both of us an year back. Also started a monthly SIP of ~1.2-1.5L in MF from Jan'2024 with 8.5L balance so far and will continue the SIP in the below funds atleast for next 10 years. Not considering debt funds as I'm already having EPF and PPF components and will periodically review these funds. 1. Nifty next 50 Index, 2. Small Cap 250 Index, 3. Multi Cap, Active 4. Mid Cap, Active 5. Flexi Cap, Active Better half may quit her job by Mar'2025. We are looking to close home loan by March'2025 and stay EMI/debt free with a peace of mind. Is it a wise decision to close a home loan by this financial year and increase the monthly SIP to 2L from next financial year? Or) invest the home loan balance amount in real estate (preferably buying a land)? especially when the home loan interest of upto 3.5L are tax fee in the old tax regime. Thanks!
Ans: Dear Friend, Given your current financial standing, closing your home loan by March 2025 seems like a wise choice. You have Rs 26.5L parked in the SBI Max Gain account, which already reduces your interest liability. By clearing the remaining Rs 12.65L, you can become debt-free, providing peace of mind and freeing up your EMI payments for additional investments. While the home loan offers tax benefits under the old regime, the psychological comfort of being debt-free may outweigh the potential tax savings, especially since your financial portfolio is already strong.
Once the loan is closed, increasing your monthly SIPs to Rs 2L would be a smart move. Over the next 10 years, equity mutual funds, which historically offer returns of 10-12% annually, can significantly grow your wealth. Since you are already investing in a diversified portfolio of index, small-cap, mid-cap, and flexi-cap funds, increasing these investments aligns well with your long-term goals.
Investing in real estate, particularly land, can provide diversification. However, real estate is typically less liquid and the returns can be location-dependent. If you're confident in the property’s growth potential, this can be a good long-term investment. However, your existing strategy of focusing on equity mutual funds will likely offer better returns and flexibility, given your 10-year investment horizon.
So closing your home loan by March 2025 and redirecting the freed-up funds into increased SIPs appears to be the best route. It balances peace of mind, tax efficiency, and long-term wealth creation, while real estate can be considered for diversification if you find a promising opportunity.
There are many real estate opportunities like REIT or Partial ownership in commercial properties which can also yield between 14 to 22% overall return with about 5 to 8% monthly return and 10 to 12% of Growth in the Asset Value at end of tenure.
Investment is commodities like gold and silver can also yield a return of 8 to 10% with reducing the risk in one sector.
Diversification is the mantra, do not depend on only one or two type of investment avenues. Explore other options as well.

Best regards,
Nitin Narkhede
Founder & MD, Prosperity Lifestyle Hub https://Nitinnarkhede.com
Free Webinar https://bit.ly/PLH-Webinar

..Read more

Ramalingam

Ramalingam Kalirajan  |8291 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Dec 27, 2024

Money
I have 6 Lak Home loan balance with 40 K EMI for 2 years balance tenure. I will get 10 L from LIC after 4 months, should I set off my home loan and park balance in ICICI blue chip fund and 40 K SIP. Or should I continue with EMI and put all 10 L in large cap fund? Please advise. My age is 50 years.
Ans: You have a home loan balance of Rs 6 lakh with an EMI of Rs 40,000 and a tenure of two years. In four months, you expect Rs 10 lakh from an LIC maturity. You are considering setting off the loan and investing the balance or continuing the EMI and investing the full amount in large-cap mutual funds.

Let's evaluate your options from a 360-degree perspective.

Benefits of Prepaying the Home Loan
Interest Savings: Paying off your loan early saves significant interest costs. Home loans, even with tax benefits, carry an effective interest burden.

Emotional Relief: Being debt-free provides mental peace and financial security, especially as you approach retirement.

Risk Reduction: Prepaying eliminates the uncertainty of managing liabilities in unpredictable scenarios like job loss or health issues.

Drawbacks of Prepaying the Home Loan
Loss of Tax Benefits: Prepaying the home loan means losing the deductions under Section 80C and Section 24(b) of the Income Tax Act.

Opportunity Cost: The amount used to prepay could potentially yield higher returns if invested elsewhere.

Evaluating Investments in Mutual Funds
You mentioned large-cap and blue-chip mutual funds as options. Here are the key points:

Actively Managed Large-Cap Funds
Professional Expertise: Fund managers analyze market trends and adjust portfolios to optimize returns.

Potential for Outperformance: They aim to beat benchmark indices, offering a chance for higher returns than index funds.

Drawbacks of Index Funds
Limited Flexibility: Index funds are passive and cannot adapt to market changes.

Lower Customization: They replicate the index and do not consider specific investor goals.

Regular Funds vs Direct Funds
Benefits of Regular Funds: Investing through a Certified Financial Planner ensures expert guidance. They help with fund selection, portfolio rebalancing, and goal tracking.

Drawbacks of Direct Funds: Managing them requires time, expertise, and constant monitoring, which can be challenging.

Key Considerations Based on Your Age
At 50, financial stability and debt freedom become critical.

Prioritize risk management over aggressive wealth accumulation.

Ensure a clear plan for retirement with adequate savings and investments.

360-Degree Solution
Option 1: Prepay Home Loan and Invest Balance
Use Rs 6 lakh to settle the home loan.
Invest the remaining Rs 4 lakh in a mix of large-cap mutual funds and safer debt funds.
Redirect the Rs 40,000 EMI amount towards SIPs in actively managed funds.
This approach offers debt freedom and builds wealth through disciplined SIPs.

Option 2: Continue EMI and Invest Full Amount
Invest the Rs 10 lakh in a diversified portfolio, including large-cap equity and debt funds.
Allocate Rs 40,000 EMI for the remaining two years from regular income.
Gradually move funds to safer options as you approach retirement.
This approach leverages compounding returns but retains the loan liability for two years.

Tax Implications
Equity mutual funds: Long-term capital gains above Rs 1.25 lakh are taxed at 12.5%. Short-term capital gains are taxed at 20%.

Debt mutual funds: Gains are taxed as per your income slab.

Factor these into your decision when investing or redeeming funds.

Recommendations
If mental peace and debt freedom are priorities, Option 1 is better.

If you are comfortable with the EMI and can handle market risks, consider Option 2.

Avoid overexposure to a single asset class like large-cap funds. Diversify across equity, debt, and hybrid funds.

Finally
Every decision must align with your goals, risk tolerance, and retirement needs. Consulting a Certified Financial Planner can help you make a well-informed choice.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

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

..Read more

Ramalingam

Ramalingam Kalirajan  |8291 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Dec 27, 2024

Asked by Anonymous - Dec 19, 2024Hindi
Listen
Money
Hi sir, I am 31 years old, my monthly salary is 70 thousand. I have a existing home loan around 1986000 with ROI 9.25% for 29years. and till now through SIP I have invested 5 Lac and I keep liquid fund 2.5 Lac. My current balance including all SIP and liquid fund 9 Lac. I need a advise from you that I should repay my home with this 9 Lac or I should continue investing as SIP and continue EMI and repay homeloan as 1 or 2 EMI Extra in a year.
Ans: At 31, you have a strong financial foundation. Your disciplined SIP investments, liquid funds, and home loan management are appreciable. Let’s assess your options to help you make the best decision.

Analysing Your Current Financial Situation
Existing Home Loan
Your outstanding home loan of Rs 19.86 lakhs has a tenure of 29 years.
The interest rate is 9.25%, which impacts your long-term cash flow.
The EMI will consume a consistent portion of your salary over the years.
SIP Investments
You have already invested Rs 5 lakhs through SIPs.
Regular investments in SIPs help in wealth accumulation and compounding returns.
Your monthly SIPs are likely aligned with your financial goals.
Liquid Funds
You hold Rs 2.5 lakhs in liquid funds.
This provides a buffer for emergencies or short-term needs.
Options to Consider
Option 1: Use Rs 9 Lakhs to Prepay the Loan
Prepaying the loan can reduce the principal significantly.
This reduces the overall interest burden and loan tenure.
However, this locks your funds into a low-return liability.
Option 2: Continue SIPs and Pay Extra EMIs Annually
Continue your SIP investments for higher long-term returns.
Paying 1–2 extra EMIs yearly can reduce the tenure significantly.
This approach balances wealth creation and liability management.
Option 3: Split Funds Between Prepayment and Investments
Use a portion of Rs 9 lakhs for partial prepayment.
Invest the remaining amount in SIPs or other high-return instruments.
This ensures debt reduction and continued wealth growth.
Evaluating Return on Investment
Home Loan Interest vs SIP Returns
Your home loan interest rate of 9.25% is a guaranteed expense.
Equity SIPs typically yield higher returns, averaging 12–15% annually.
Investing in SIPs could create wealth faster than prepaying the loan.
Tax Benefits on Home Loan
You may claim tax deductions on home loan interest and principal.
Prepaying reduces the tax-saving benefits.
Recommended Approach
Maintain Emergency Liquidity
Retain Rs 2.5 lakhs or more in liquid funds.
This ensures financial stability during unforeseen situations.
Focus on SIP Investments
Continue SIPs to benefit from long-term compounding.
Increase your SIP contributions gradually with salary increments.
Make Partial Prepayments
Use a portion of Rs 9 lakhs for partial prepayment.
Aim to reduce the principal significantly to lower interest outflows.
Pay Extra EMIs
Commit to paying at least 2 extra EMIs annually.
This reduces your loan tenure and interest burden effectively.
Avoid Common Pitfalls
Do Not Over-Allocate to Loan Prepayment
Avoid locking all your funds into loan repayment.
This limits your liquidity and investment potential.
Avoid Real Estate Investments
Real estate involves high costs, illiquidity, and uncertain returns.
Stick to diversified mutual funds or equity investments instead.
Maintain Disciplined Financial Planning
Ensure a balanced approach between debt reduction and wealth creation.
Review your financial goals annually for necessary adjustments.
Final Insights
Your financial journey is off to a great start. Continue with SIP investments to maximise long-term growth. Use surplus funds for partial loan prepayments and extra EMIs to manage your debt efficiently. Balancing both strategies will ensure a secure financial future and help you achieve your goals effectively.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

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

..Read more

Latest Questions
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.

Close  

You haven't logged in yet. To ask a question, Please Log in below
Login

A verification OTP will be sent to this
Mobile Number / Email

Enter OTP
A 6 digit code has been sent to

Resend OTP in120seconds

Dear User, You have not registered yet. Please register by filling the fields below to get expert answers from our Gurus
Sign up

By signing up, you agree to our
Terms & Conditions and Privacy Policy

Already have an account?

Enter OTP
A 6 digit code has been sent to Mobile

Resend OTP in120seconds

x