Hello Sir, I'm 35 year. And getting 28lpa. Currently I'm invest in 6 SIPs (31k) monthly, 5k in NPS, 26k is personal loan, 17k car emi and purchasing 15k stock in every month. Stock buying I started from jan2024. I have around 25lakh in my sip fund and 10lakh other fund. Now I'm planning to buy a home that cost around 90 lakh. So my question is, can take the 80% home loan and keep my SIP. Or withdraw my all sip fund and reduce home loan amount. Btw my personal loan will complete end of this year. Please suggest withdraw the sip fund is good option or taking the home loan is good option.

Ans: I understand that you're feeling uncertain about your decision to purchase a house and take on a significant home loan. Let's analyze your situation and consider your options:

Selling the House:
Selling the house to alleviate the burden of monthly EMIs can be a prudent decision, especially if you're experiencing financial strain.
By selling the house, you'll free up funds that can be redirected towards investments such as SIPs, which offer the potential for long-term growth.
Investing in SIPs:
SIPs are a disciplined way to invest in mutual funds and can help you build wealth over time.
By redirecting the funds from the sale of your house towards SIPs, you'll have the opportunity to diversify your investment portfolio and potentially achieve your financial goals.
Considerations:
Before selling the house, evaluate the current real estate market conditions and ensure that you can secure a favorable selling price.
Take into account any associated costs such as brokerage fees, taxes, and prepayment penalties on your home loan.
Assess your financial priorities and long-term goals to determine if investing in SIPs aligns with your objectives.
Seeking Professional Advice:
As a Certified Financial Planner, I recommend consulting with a financial advisor or a real estate expert to evaluate the pros and cons of selling the house.
A professional can provide personalized guidance based on your financial situation and help you make an informed decision.
Ultimately, whether selling the house to invest in SIPs is a good decision depends on various factors, including your financial goals, risk tolerance, and overall financial health. Take your time to weigh the options carefully and seek advice if needed. Remember, it's important to prioritize your financial well-being and make decisions that align with your long-term objectives

Ans: Your query reflects careful consideration of financial priorities. Let's analyse whether using your stock investments to repay the home loan is the right step.

Evaluate the Existing Stock Portfolio
Your stock portfolio has grown from Rs 7.75 lakhs to Rs 10 lakhs in 2.5 years.

This indicates a strong return of approximately 29%. If these stocks have long-term growth potential, continuing to hold them might be advantageous.

Consider whether these stocks align with your risk tolerance and long-term financial goals.

Impact of Repaying the Home Loan
Your remaining home loan is Rs 5.5 lakhs. Paying this off will eliminate your EMI burden.

Repaying the loan early saves on interest costs, but assess the prepayment charges, if any.

Compare the effective interest rate on your home loan with the expected annualised return from your stock portfolio.

Home loan interest rates are usually lower compared to stock market returns over the long term.

Increasing SIP After Loan Repayment
Repaying the loan frees up EMI money that can be channelled into mutual fund SIPs.

By increasing SIPs, you benefit from disciplined investing and rupee cost averaging.

Use the additional SIPs to diversify into funds aligned with your risk profile and financial goals.

Considerations for Long-Term Wealth Creation
Mutual funds, especially actively managed ones, provide better diversification than direct stocks.

Your current SIP of Rs 30,000 per month is a good start. Increasing this amount post-loan repayment accelerates wealth creation.

Actively managed funds can outperform index funds through skilled fund management. Avoid direct funds unless you have deep knowledge and time to manage investments.

Evaluating Stock Liquidation
Selling your stocks could trigger capital gains tax. For gains above Rs 1.25 lakh, you will pay LTCG tax at 12.5%.

Factor in transaction costs and tax implications before selling.

Retain stocks that have strong fundamentals and growth prospects. Sell only non-performing or high-risk holdings.

Holistic Financial Planning
Build an emergency fund covering 6-12 months of expenses if you don’t already have one.

Ensure you have adequate life and health insurance coverage for your family’s security.

Maintain a balanced portfolio with exposure to equity, debt, and alternative assets.

Monitor your investments regularly and rebalance them to align with changing goals and risk tolerance.

Final Insights
If your home loan interest is significantly higher than potential stock returns, repayment is wise.

Otherwise, consider maintaining the stock portfolio and continuing your SIPs.

A mix of both strategies—partial loan repayment and increased SIPs—may offer balanced benefits.

Engage a Certified Financial Planner for a tailored strategy that ensures long-term financial success.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

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

Ans: Congratulations on your upcoming retirement and achieving a debt-free, responsibility-free status. Here’s a breakdown of the pros and cons of each option to help you decide whether to clear the home loan or invest in SIPs. Each approach has its merits, but since you value peace of mind above all, we'll examine both from a holistic perspective.

1. Clearing the Home Loan
Immediate Debt-Free Status: By using Rs. 40 lakh to clear your home loan, you can become debt-free instantly. This would eliminate monthly EMI obligations of Rs. 57,000, giving you a sense of financial relief.

Interest Savings: Paying off the loan early will save you a substantial amount in interest. Over 126 remaining EMIs, the interest saved by closing the loan could outweigh potential SIP returns, depending on the interest rate of your home loan.

Emotional and Psychological Relief: For those seeking peace of mind, being debt-free is often invaluable. If not having the burden of a loan is your priority, this option ensures freedom from monthly repayments, letting you enjoy your retirement worry-free.

Financial Flexibility: Without the Rs. 57,000 monthly EMI, you’ll have additional flexibility. This can help you better manage your retirement finances or even allow for smaller, less risky investments over time.

2. Investing in SIPs
Potential for Higher Returns: Over the long term, equity SIPs typically offer higher returns compared to the interest you would save by paying off a loan. For an 8–10-year horizon, SIPs in a diversified portfolio can potentially grow the Rs. 40 lakh corpus, creating a larger retirement cushion.

Liquidity Advantage: By investing in SIPs, your money remains accessible. Should you need funds later, you can redeem SIPs, whereas funds used to clear the loan would be tied up.

Tax Benefits and Compounding: Investments in equity mutual funds benefit from compounding and, if held long-term, offer favorable capital gains taxation (LTCG above Rs. 1.25 lakh taxed at 12.5%). This could result in net returns that outpace loan interest, but the market risks must be considered.

Balancing Monthly Expenses: Continuing the loan means a fixed monthly outflow of Rs. 57,000. Ensure your retirement income is comfortably meeting your lifestyle and monthly expenses before committing to SIPs with the entire Rs. 40 lakh.

Assessing Peace of Mind
Since peace of mind is your top priority, consider the following approach for a balanced solution:

Partial Loan Repayment and Partial SIP Investment: You could use a portion of the Rs. 40 lakh to reduce the outstanding principal on your loan. This would lower your EMI burden, freeing up some cash flow each month. The remaining amount could go into SIPs, allowing for wealth growth alongside a manageable EMI.

Emergency Fund Consideration: Retaining a portion of the Rs. 40 lakh in safe, liquid instruments (like a Fixed Deposit or Liquid Fund) will provide you with emergency backup funds. This ensures peace of mind while allowing for potential SIP growth.

Evaluate Your Risk Comfort: If market fluctuations don’t align with your peace of mind goal, paying off the home loan in full might be preferable. However, if you are comfortable with moderate risk and fluctuations, SIPs could offer better returns in the long run.

Final Insights
Given that your priority is peace of mind, a balanced approach might serve best: use a portion to reduce the home loan, and allocate the remainder towards SIPs or safer investments. This way, you retain growth potential while minimizing debt obligations.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

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