Should I Invest While Delaying Home Loan Principal Payment?

Ans: Hello and thanks for writing to me. I only discuss about mutual funds and no other investment avenues.
I can give you a brief idea about investing via mutual funds but highly recommend that you talk to financial planner as they can guide you according to your own needs and risk profile.

Your pension should take care of your EMI payments and you would have Rs.95,000 which can take care of your day-to-day expenses. Per your request where you invest Rs.50,000 monthly, I guess your monthly expenses amount to Rs.45,000.

You have an investible corpus of Rs.65 Lakh in hand and Rs.50,000 every month.

You can first invest the Rs.65 Lakh in a basket of balanced advantage funds and aggressive hybrid funds. For the Monthly Rs.50,000 SIP's you can consider beginning SIP's in:

1-Edelweiss NIFTY 100 Quality 30 Index Fund-Rs.10,000
2-DSP Quant Fund-Rs.10,000
3-UTI MNC Fund-Rs.10,000
4-SBI Bluechip Fund-Rs.10,000
5-SBI Focused Equity Fund-Rs.10,000

Ans: Considering your goal to pay off your home loan in 10 years through SIPs, you can invest in equity mutual funds for potentially higher returns. Opt for SIPs in diversified equity funds or balanced funds to balance risk and return. Regularly review and adjust your SIPs to align with your goal and risk tolerance.

Ans: For how many years you want to remain invested ?

Ans: Current Financial Situation
Age: 35 years
Location: Hyderabad
Take Home Salary: Rs 1.4 lakhs
Home Loan: Rs 48 lakhs (taken in 2019 for 20 years), EMI of Rs 42,000
Personal Loan EMI: Rs 20,000
Monthly SIPs: Rs 20,000 in equity mutual funds
PPF Contribution: Rs 3,000 monthly
NPS Contribution: Rs 4,000 monthly
Learning and Courses: Rs 2 lakhs annually (~ Rs 16,667 monthly)
Traveling: Rs 2 lakhs annually (~ Rs 16,667 monthly)
Car Purchase Plan: Car worth Rs 12 lakhs, with additional Rs 20,000 monthly for fuel and EMI
Accumulated Balances
Mutual Funds: Rs 12 lakhs
PPF: Rs 2 lakhs
NPS: Rs 2.5 lakhs
PF: Rs 10 lakhs
Stocks: Rs 1 lakh
Key Considerations
Debt Management: High EMIs for home and personal loans
Investment Strategy: Existing SIPs and contributions to PPF and NPS
Future Commitments: Potential car purchase and associated costs
Financial Goals: Early repayment of home loan and disciplined investment approach
Evaluating Options for Early Home Loan Repayment
1. Additional EMIs
Advantage: Directly reduces the principal amount, leading to significant interest savings over time.
Disadvantage: Reduces your monthly disposable income and might strain your budget.
2. Separate SIP for Loan Repayment
Advantage: Potential for higher returns from the market, which can be used to repay the loan lump sum.
Disadvantage: Market risk; returns are not guaranteed and depend on market performance.
Recommended Strategy
A. Debt Prioritization
Focus on High-Interest Debt: Prioritize clearing the personal loan first due to its likely higher interest rate compared to the home loan.
Channel Extra Funds: Allocate any bonuses or surplus income towards additional EMIs for the personal loan.
B. Structured SIP Approach
Start a Separate SIP: Set up a dedicated SIP to accumulate funds for home loan repayment.
Allocation: Aim to invest Rs 20,000 monthly in a diversified equity mutual fund for the next 10 years.
Growth Potential: Given the long-term horizon, this can potentially yield higher returns, aiding in substantial repayment.
C. Maintain Existing Contributions
Continue SIPs: Maintain your current SIPs of Rs 20,000 to ensure long-term wealth accumulation.
PPF and NPS Contributions: Continue with your PPF and NPS contributions for tax benefits and retirement savings.
D. Budget for Future Commitments
Car Purchase: Reevaluate the necessity and timing of the car purchase. If essential, consider a smaller loan amount to avoid overburdening your finances.
Additional Costs: Plan for the additional Rs 20,000 monthly for the car's fuel and EMI by reassessing discretionary expenses.
Financial Discipline and Adjustments
Maintain Emergency Fund: Ensure you have an adequate emergency fund covering 6-12 months of expenses.
Expense Management: Track and manage discretionary expenses like courses and travel. Ensure these do not impede your loan repayment goals.
Review and Rebalance: Periodically review your investment portfolio and rebalance as needed to stay aligned with your goals.
Final Insights
Early repayment of your home loan is achievable with disciplined financial management. Prioritize paying off high-interest debts first. Start a separate SIP for home loan repayment, leveraging the market's growth potential. Maintain existing investments and ensure you have a well-structured budget to accommodate all commitments without straining your finances.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in