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Sunil

Sunil Lala  | Answer  |Ask -

Financial Planner - Answered on Feb 16, 2023

Sunil Lala founded SL Wealth, a company that offers life and non-life insurance, mutual fund and asset allocation advice, in 2005. A certified financial planner, he has three decades of domain experience. His expertise includes designing goal-specific financial plans and creating investment awareness. He has been a registered member of the Financial Planning Standards Board since 2009.... more
Asked by Anonymous - Feb 07, 2023Hindi
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Dear Gurus, I have a SBI max gain Home loan (17Lakh) overdraft facility with monthly emi of 20000, but I have parked the entire amount in the HL balance and not being charged any interest, so the auto EMI deducted from SBI savings account, I manually transfer it back to my savings account every month....is that OK to do? considering I may have to buy any new property in future & during that time I can used this parked money OR should I close the Home loan & stop the auto EMI?

Ans: You can continue with SBI Maxgain & withdraw when you need money for purchase of new house
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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Anil

Anil Rego  |388 Answers  |Ask -

Financial Planner - Answered on Aug 25, 2021

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My monthly salary income is Rs 1.15 lakhs. I have a housing loan of Rs 30 lakhs in SBI and am paying Rs 30,000 as EMI. This is the sixth year I am paying the loan. So far, I have paid Rs 9 lakhs towards the loan amount and have parked Rs 21 lakhs in the MaxGain account. In SBI, the amount in the MaxGain account is also considered for loan interest rate. I can withdraw this amount anytime. But I don't have any intentions to withdraw. If I move the amount in the MaxGain account to the loan account, my loan will substantially reduce. Is it a wise decision to do that? With my other savings, if I close my housing loan, are there any investment avenues (the investment should provide liquidity) to save tax.
Ans: Considering that interest rates are low currently, that you are getting a tax benefit and that the MaxGain account allows you to net off your account balance, it is a good idea to continue the loan.

You can choose to maintain the balance in the account and, if your balance is to the extent of your principal, you will not pay any interest in the worst case scenario.

You can calculate the net cost to you after the tax saving. For example, if your interest rate is 7 per cent and you are in the 30 per cent bracket, your net cost is 4.9 per cent. If you are able to invest and get a return higher than 4.9 per cent, then it is beneficial to invest.

You can calculate the net cost to you on similar lines, based on the tax bracket and the surcharge levels.

You could look to start a SIP in mutual funds or make any other investment from this account if your return is higher than the net cost. This will make your money work for you.

While investing money from the account, keep in mind that it is not a good idea to invest in FDs or other debt options if your post tax return is lower than 4.9 per cent. Worse still is to park your money in a savings bank account.

..Read more

Ramalingam

Ramalingam Kalirajan  |8442 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on May 14, 2025

Asked by Anonymous - May 13, 2025
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Dear Sir, I am 39 years old with a home loan of 14 lakhs outstanding. My EMI is Rs 37500 rs, and I have 4 years left in the tenure. My monthly income is 2.25 lakhs. I have mutual fund investments worth 24 lakhs, gold bond worth 3 lakhs, and a short term fixed deposit of 12 lakh as emergency fund which Is 12 month expense in case of emergency. Should I use some of my savings to prepay the home loans or continue paying EMIs and let my investments grow? Or can I lower my emi to 20000 rs from 37500 rs and use the remaining 17500 rs in equity investment.
Ans: You are 39 years old with a monthly income of Rs. 2.25 lakhs.
You have a home loan of Rs. 14 lakhs outstanding with an EMI of Rs. 37,500.
The loan tenure remaining is 4 years.
You have mutual fund investments worth Rs. 24 lakhs.
You hold gold bonds worth Rs. 3 lakhs.
You maintain a short-term fixed deposit of Rs. 12 lakhs as an emergency fund, covering 12 months of expenses.

Your financial discipline and foresight are commendable. Let's analyze your situation and explore the best course of action.

1. Home Loan Prepayment Considerations

Prepaying your home loan can reduce your interest burden.

With 4 years left, interest savings may be moderate.

Prepayment can provide psychological relief from debt.

It can also improve your credit score.

However, consider if prepayment charges apply.

Some banks may levy penalties for early closure.

Ensure you have sufficient liquidity post-prepayment.

Avoid dipping into your emergency fund for prepayment.

Evaluate if the interest saved outweighs potential investment returns.

2. Mutual Fund Investment Perspective

Your mutual fund corpus is substantial at Rs. 24 lakhs.

Equity mutual funds have historically offered 9-12% annual returns.

Staying invested can potentially yield higher returns than loan interest saved.

Mutual funds offer liquidity and flexibility.

They can be aligned with long-term financial goals.

Consider the tax implications of redeeming mutual funds.

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

Short-term gains are taxed at 20%.

Evaluate if the net returns justify staying invested.

3. Emergency Fund Adequacy

Your emergency fund covers 12 months of expenses.

This is a robust safety net.

Ensure the fixed deposit is easily accessible.

Avoid using this fund for loan prepayment or investments.

Maintain this buffer for unforeseen circumstances.

4. Adjusting EMI and Redirecting Funds

Reducing EMI to Rs. 20,000 can free up Rs. 17,500 monthly.

Redirecting this amount to equity investments can build wealth.

Ensure that the extended loan tenure doesn't increase total interest significantly.

Consider the opportunity cost of lower EMI versus higher investment returns.

Align this strategy with your risk tolerance and financial goals.

5. Tax Implications and Benefits

Home loan interest payments qualify for tax deductions under Section 24(b).

Principal repayments are eligible under Section 80C.

Prepaying the loan may reduce these tax benefits.

Evaluate the net tax impact before making a decision.

Consult a tax professional for personalized advice.

6. Psychological and Emotional Factors

Being debt-free can provide peace of mind.

It reduces financial obligations and stress.

However, consider if this aligns with your long-term wealth-building goals.

Balance emotional satisfaction with financial prudence.

7. Final Insights

Maintain your emergency fund intact.

Evaluate the interest saved from prepayment versus potential investment returns.

Consider reducing EMI and investing the surplus if it aligns with your goals.

Ensure any decision supports your long-term financial objectives.

Regularly review your financial plan with a Certified Financial Planner.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

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

..Read more

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