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 your situation, it's great that you're contemplating your financial future. With your stable income, you have the potential to make wise choices.

Your housing loan's interest rate is relatively low, which is beneficial. By maintaining regular EMIs, you're already on track to clear the loan within the stipulated tenure.

Investing in mutual funds is a solid strategy, offering potential returns higher than your loan's interest rate. It allows your money to grow over time.

However, investing additional funds to close your loan faster can bring peace of mind. It reduces your debt burden and saves on interest payments in the long run.

Before deciding, consider your risk tolerance and financial goals. Ensure you have an emergency fund and are contributing to retirement savings.

As a Certified Financial Planner, I recommend diversifying your investments. Explore different asset classes to mitigate risk and maximize returns.

Regular mutual funds through a certified financial planner can offer personalized guidance, potentially outperforming direct funds in the long term.

Remember, financial planning is about finding the right balance between debt management and wealth accumulation.

Take your time to weigh the options and choose what aligns best with your aspirations and comfort level.

Best Regards,
K. Ramalingam, MBA, CFP,
Chief Financial Planner,
www.holisticinvestment.in

Ans: Given your financial situation, it's important to consider various factors before making a decision.

Home Loan: Making a lump sum payment of Rs. 10 lakhs towards your home loan can significantly reduce the outstanding principal amount. This can lead to a reduction in the total interest paid over the remaining tenure of the loan and potentially shorten the loan duration. However, consider whether the interest rate on your home loan is higher than the potential returns from alternative investments.
Investment: Investing Rs. 10 lakhs to generate a regular monthly income is another option. You can explore investment avenues such as Fixed Deposits, Mutual Funds, or Bonds that offer regular interest or dividend payments. However, consider the risk-return profile of these investments and whether they align with your financial goals and risk tolerance.
Financial Goals: Evaluate your financial goals and priorities. If you prioritize reducing debt and becoming debt-free sooner, making a lump sum payment towards your home loan might be the right choice. On the other hand, if generating a regular monthly income is your primary goal, investing the Rs. 10 lakhs might be more suitable.
Consultation: Consider consulting with a Certified Financial Planner who can assess your overall financial situation, goals, and risk tolerance. They can provide personalized advice and help you make an informed decision based on your specific circumstances.
Ultimately, the decision depends on your individual financial objectives, risk tolerance, and overall financial health. Ensure you weigh the pros and cons of each option carefully before making a decision.

Ans: Here's a simplified analysis to help you decide:

Prepayment vs. Investment: Prepaying your loan saves interest but reduces available investment capital. Investing offers potential growth but your loan continues to accrue interest.

Consider Interest Rate: At 6% interest, your loan rate is relatively low. Aggressive prepayment might not be as beneficial.

Option 1: Invest (Potential Higher Returns):

Invest 4 lakhs annually in equity mutual funds (SIP) for potentially higher returns over the long term (10+ years).

Continue paying EMIs. Consider increasing SIP amount if your income grows.

Option 2: Prepay Loan (Guaranteed Savings):

Prepay 4 lakhs annually to reduce your loan tenure and total interest payout.

Invest remaining amount after considering emergency fund needs.

Talk to a Financial Advisor:

A financial advisor can consider your risk tolerance, investment goals, and future income projections to create a personalized plan for you.

Ans: It is always prudent to prepay your loans, as early as possible, and use the surplus income to more investments which could help you to fund your retirement and other financial goals.