hello sir, i have taken gold loan at 8.8% pa and using the gold amount for lending at 18% pa. i want an advice on if i should purchase new gold at the price of Rs 66000 per 10gms n again take a loan at 8.8%, where 24 carat gold value calculated is 85% by bank that is Rs56100 or i should lend the same amount of Rs 66000 at 18%

Ans: While using gold as collateral to obtain an overdraft (OD) facility may seem like a viable option to manage your interest costs, there are several factors to consider before proceeding with this strategy:

Interest Rate Differential: The interest rate on your OD facility against gold needs to be significantly lower than the interest rate on your business loan for this strategy to be beneficial. Ensure that the cost of borrowing against gold is lower than the 10.5% interest rate on your business loan.

Risk of Fluctuating Gold Prices: Gold prices are subject to market volatility and can fluctuate over time. If the value of gold decreases, you may face challenges in maintaining the required collateral value for your OD facility. This could potentially lead to margin calls or the need to pledge additional assets.

Liquidity Constraints: While gold can be a valuable asset, it may not provide the same level of liquidity as cash or cash equivalents. If you require immediate access to funds, selling gold or obtaining an OD against it may not be as straightforward as withdrawing from a bank account.

Loan Repayment Considerations: Using gold as collateral for an OD does not eliminate your obligation to repay the original business loan. Ensure that you have a clear repayment plan in place to address both the business loan and any outstanding amounts on the OD facility.

Regulatory and Lender Requirements: Check with your lender regarding their policies on using gold as collateral and obtaining an OD facility. There may be specific eligibility criteria, loan-to-value ratios, and documentation requirements that you need to fulfill.

Before proceeding with this strategy, it's advisable to consult with a financial advisor or banking professional who can assess your specific situation and provide guidance tailored to your needs and objectives. Additionally, consider exploring alternative options for managing your interest costs and addressing any delays in your investment plans.

Ans: Current Financial Position Overview

You are 33 years old. This gives you time for strong wealth creation.

 

Your take-home income is Rs. 90,000 per month. That is a decent and stable income.

 

You already built an emergency fund of Rs. 5 lakh. That’s a very wise step.

 

You hold Rs. 5 lakh in savings and Rs. 6 lakh in gold.

 

Your current SIP is Rs. 2,000 per month. That is a small start. Can be improved.

 

You have an outstanding home loan of Rs. 22 lakh.

 

You are considering using both gold and savings for part loan prepayment.

 

Understanding Your Home Loan Burden

Outstanding home loan is Rs. 22 lakh. That is a moderate liability at your age.

 

Loan EMIs take a regular share of monthly income.

 

Reducing this EMI outflow can increase future savings potential.

 

Prepaying a home loan reduces your total interest payout.

 

However, every rupee paid off now also reduces liquidity and long-term investment power.

 

Should You Use Rs. 5 Lakh Savings for Prepayment?

This amount is outside your emergency fund. So using it is okay.

 

Prepaying with these savings will lower your debt faster.

 

But ensure at least 6 months' expenses are untouched as emergency reserve.

 

If Rs. 5 lakh is not touching that reserve, you can safely use it.

 

You will save more interest than a bank FD will earn.

 

So, this prepayment move is logical and timely.

 

Assessing the Role of Gold in Your Financial Plan

You own gold worth Rs. 6 lakh. Gold is not an income-generating asset.

 

It just sits idle. It has long-term volatility and low cash flow potential.

 

Emotionally, gold feels like security. But financially, it blocks growth.

 

If not meant for marriage or specific purpose, it can be monetised.

 

Selling gold now can help reduce interest-bearing debt.

 

This step will improve your monthly cash flow later.

 

Gold price is reasonably high now. So you may exit at a good value.

 

You can always rebuild small gold exposure later through SIP in gold funds.

 

Physical gold involves storage, insurance, and no return unless sold.

 

Benefits of Home Loan Prepayment with Gold and Savings

Less loan balance means fewer EMI months.

 

Faster freedom from debt builds confidence and improves future planning.

 

Your net worth improves as liabilities reduce.

 

You may also qualify for better interest rates post part-payment.

 

Once loan is cleared faster, that EMI money can move to investments.

 

But do check prepayment charges with your bank.

 

What to Do with EMI Savings After Prepayment?

Redirect EMI savings into SIPs in mutual funds.

 

This builds wealth over 7–10 years for long-term goals.

 

Begin with Rs. 5,000 and gradually increase SIP to Rs. 10,000 or more.

 

Follow a disciplined investment plan aligned with your financial goals.

 

Choose regular plans through MFDs with Certified Financial Planner guidance.

 

Avoid Direct Plans – Here’s Why

Direct plans skip advisor fees. But they skip advice too.

 

Choosing funds without expert help is risky and confusing.

 

You may pick based on short-term returns. That leads to wrong timing.

 

Regular plan through MFD linked to a Certified Financial Planner gives full support.

 

Portfolio review, goal tracking, asset mix – all managed in one place.

 

In long run, this adds more value than you save on costs.

 

Build SIP Discipline After Prepayment

Your SIP now is Rs. 2,000. It is too low for wealth creation.

 

Use Rs. 10,000–15,000 of EMI money post prepayment for monthly SIPs.

 

Invest in 3 or 4 well-diversified mutual fund schemes.

 

Focus more on actively managed funds than passive or index funds.

 

Index funds lack downside protection during market falls.

 

Active funds with good track record can manage volatility better.

 

Emergency Fund Review

Rs. 5 lakh emergency fund is adequate now.

 

You must ensure it is parked in liquid or ultra-short mutual funds.

 

Avoid FDs for this. Returns are low and access is not instant.

 

Never use emergency fund for investments or loan prepayment.

 

Keep it untouched and always ready.

 

Insurance – The Silent Guardian

Do you have term insurance? It’s a must at your age.

 

Ideally 15 to 20 times of annual income is needed.

 

Also ensure a health cover of minimum Rs. 5 lakh.

 

Without protection, wealth building is like driving without brakes.

 

Loan Prepayment or Investment – A Quick Comparison

Prepaying a home loan gives fixed benefit by reducing interest outgo.

 

Investing in mutual funds may offer higher returns. But with risk.

 

At your current age, blending both is a balanced strategy.

 

Prepay now using gold and savings. Then, increase monthly SIPs.

 

This way, both wealth and peace of mind grow together.

 

Avoid These Mistakes

Don’t break emergency fund for prepayment.

 

Don’t sell gold if it is earmarked for family needs.

 

Don’t stop SIPs completely to prepay loan.

 

Don’t delay term and health insurance decisions.

 

Don’t invest in real estate now to build wealth.

 

Don’t fall for stock tips or short-term returns.

 

Create a Post-Loan Financial Vision

Once the loan is reduced or closed, your EMI amount becomes investable.

 

Use that extra monthly cash to grow wealth slowly.

 

Stick to long-term goals and don’t change funds often.

 

Keep a goal-based investment mindset.

 

Review progress once a year with a Certified Financial Planner.

 

Finally

You are doing well. At 33, you have made smart financial moves.

 

Emergency fund, savings, home loan discipline – you are on the right path.

 

Selling gold and using savings for part-prepayment makes good sense now.

 

But remember, don’t touch the emergency buffer.

 

After prepayment, increase SIPs step-by-step.

 

Use regular mutual funds through MFDs guided by a Certified Financial Planner.

 

Your wealth will grow with less pressure, more control, and better clarity.

 

Focus on both financial protection and freedom.

 

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