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Ramalingam Kalirajan |10879 Answers |Ask -Follow

Mutual Funds, Financial Planning Expert - Answered on Aug 02, 2025

Ramalingam Kalirajan has over 23 years of experience in mutual funds and financial planning.
He has an MBA in finance from the University of Madras and is a certified financial planner.
He is the director and chief financial planner at Holistic Investment, a Chennai-based firm that offers financial planning and wealth management advice.... more

Asked by Anonymous - Jul 08, 2025Hindi

my principal outstanding is 2122745 INR, and balance tenure is 138 Months, if I pay 15 lakhs as pre payment, how it will impact my loan is it a good idea or should I do something else with this amount. I do allocate my self some emergency funds and SIP of 5000 pm.

Ans: You are thinking in the right direction by planning a large prepayment.
Your clarity and intent to reduce debt show good financial awareness.
Let’s explore how Rs 15 lakhs prepayment can impact your loan.
And whether this is the best use of that money.

» Loan Snapshot and Current Scenario

– Your loan outstanding is Rs 21.22 lakhs.
– The remaining loan tenure is 138 months (11.5 years approx).
– You have Rs 15 lakhs surplus available now.
– You already maintain emergency funds.
– You are doing SIP of Rs 5,000/month.

You are in a good position to make a powerful money decision now.
Let’s assess both loan prepayment and alternate options.

» Impact of Rs 15 Lakhs Prepayment

– Rs 15 lakhs is over 70% of your outstanding loan.
– After paying this amount, loan reduces to around Rs 6.2 lakhs.
– EMI will remain same if tenure is reduced.
– Or tenure stays same if EMI is reduced.
– Ask the bank to reduce tenure. That saves more interest.
– Your new tenure may drop to just 2.5 to 3 years.
– You save lakhs in total interest cost.
– You also become debt-free early.

Loan prepayment here gives huge financial relief and peace.

» Should You Use Rs 15 Lakhs for Prepayment?

– Yes, if the interest rate is above 8%.
– Yes, if you dislike EMI stress.
– Yes, if the loan is not giving any tax benefit.
– Yes, if you are nearing any big life goals.
– Yes, if peace of mind matters more than return.

Prepaying such a big chunk gives instant control and clarity.

» Are There Better Alternatives to Prepayment?

– Let’s say you don’t prepay the loan.
– You invest Rs 15 lakhs in a mutual fund portfolio.
– You expect 10–12% return yearly.
– If your loan interest is below 8%, investment may beat it.
– But investments carry risk and market cycles.
– Debt has a fixed cost, market does not have fixed gain.
– Also, emotional stress of loan burden continues.

So, the return-vs-safety comparison must match your mindset.

» Why Partial Prepayment + Partial Investment May Work Best

– You can prepay Rs 10 lakhs from the 15 lakhs.
– This will still bring down EMI or tenure drastically.
– Remaining Rs 5 lakhs can go into mutual funds.
– Use this for long-term wealth or kids’ education.
– This way, you lower debt and grow wealth together.
– Also, you keep some liquidity instead of exhausting all.

This balanced approach gives more flexibility and control.

» What to Do If You Prepay Full Rs 15 Lakhs

– Loan reduces to Rs 6.2 lakhs.
– Keep paying same EMI. Ask lender to reduce tenure.
– You may close loan in 2.5–3 years.
– After loan closure, divert EMI amount to SIP.
– Your monthly SIP can now go from Rs 5,000 to Rs 25,000.
– This builds long-term wealth faster.
– Helps in retirement, child goals, and passive income later.

From debt EMI to wealth SIP is a smart shift.

» What If You Decide Not to Prepay At All

– Continue paying EMIs for 11.5 more years.
– You pay a large interest amount across this period.
– Rs 15 lakhs remains invested.
– You must earn over 10% to beat loan interest and tax.
– Your risk also stays higher due to market and interest cycle.
– If you are not emotionally comfortable with debt, this hurts.
– Loan also reduces your monthly flexibility.

Keeping high loan when you have funds is not ideal.

» Why Prepayment is Emotionally and Practically Better

– EMI-free life reduces mental stress.
– Prepayment gives guaranteed return = loan interest saved.
– It is tax-free saving.
– No market timing or exit load issue.
– Removes long-term liability from your books.
– Makes room for better financial decisions in future.

Peace is better than profit in many cases.

» If You Use Mutual Funds Instead of Prepayment

– You must have a long-term goal (7+ years).
– You must be okay with ups and downs in returns.
– You must review funds regularly.
– You must be invested through MFD with CFP credential.
– Direct funds must be avoided.
– Without proper guidance, you may panic during market fall.
– Active funds work better than index funds.
– Index funds don’t protect downside.
– Active funds manage risk better through fund manager actions.
– They suit people who want higher risk-adjusted returns.
– Also, long-term SIP must be added to this corpus.

Only then the fund-based alternative makes sense.

» Why You Must Not Use Direct Funds

– Direct plans don’t offer portfolio guidance.
– They don’t help you with emotional discipline.
– You miss rebalancing or tax strategies.
– In case of any error, you bear the full cost.
– A regular plan with a Certified Financial Planner adds value.
– You gain support, monitoring, and handholding in critical years.
– For SIP of Rs 5,000 or more, go with regular route.

This ensures long-term success and not just short-term savings.

» Loan Prepayment Execution Steps

– Contact your bank or lender.
– Ask for part prepayment quote.
– Confirm there are no penalties.
– Submit written request to reduce tenure, not EMI.
– Pay the amount via bank transfer.
– Collect revised amortisation schedule.
– Track CIBIL score to reflect reduced outstanding.
– Get all documents and receipts updated.
– Ensure ECS continues till loan fully closes.

These steps avoid confusion later and help record-keeping.

» After Loan Prepayment, What Should Be Your Next Focus

– Increase SIPs once EMI is saved.
– Review your insurance (term and medical).
– Create or expand emergency fund if needed.
– Allocate some for future goals like retirement, travel, or kids’ future.
– Revisit your asset allocation across debt, equity, and hybrid.
– Fix a yearly review date with a Certified Financial Planner.
– Avoid taking any fresh loan unless truly needed.

Use the freed-up EMI to build future stability.

» Review of Emergency Fund and SIP

– You already maintain emergency fund. That’s great.
– SIP of Rs 5,000/month is a good start.
– You can increase it after loan closure.
– Even Rs 20,000 more each month adds significant wealth.
– Don’t disturb SIP even if markets fluctuate.
– Keep increasing it every 6–12 months as income grows.
– Allocate SIP to long-term goals like retirement or kids’ education.

SIP is the engine for your financial independence.

» Finally

– Rs 15 lakhs prepayment will hugely reduce your loan burden.
– It saves interest and shortens the loan by many years.
– You can use full or part of the amount.
– Full prepayment gives peace.
– Partial prepayment gives peace and investment growth.
– No action is wrong, but balance is the key.
– Your financial health will improve either way.
– But don’t ignore guidance from a Certified Financial Planner.

Act today and enjoy the benefit for many years.

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

Asked on - Aug 05, 2025 | Answered on Aug 06, 2025

with this new taxation scheme, will there be any benefits to pay home loan interest? I think only option left for me to save me from tax could be NPS investment which I do it by 50000 per year. What I heard that no benefits will be provided for home loan as per new tax regime

Ans: You are absolutely right. Under the new tax regime, home loan interest (Section 24) and principal (Section 80C) deductions are not allowed. So, paying interest won’t reduce your taxable income now.

Your Rs. 50,000 yearly NPS investment under Section 80CCD(1B) is still valid in the new regime. That gives extra tax savings over and above the basic limit.

If you're under the new regime, focus on NPS, employer PF, and standard deduction as key tax-saving avenues.

Consult your CFP to assess if shifting back to the old regime offers better overall savings.

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

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