My wife and I are 28 years old working professionals, and earn Rs. 4 lakhs per month. We do have a total debt of 58 lakhs, for 4 years for which we pay EMIs of 2.18 lakhs. We are planning to buy a residential house for 1 cr. In order to do that, we have savings of 7 lakhs, some gold worth 10 lakhs and 8 lakhs in Mutual fund (investing 8k from Sep 2019), all of which can be considered for the down payment. My question are: 1. Can we withdraw the mutual fund for the down payment as we can claim tax on capital gain for purchasing a house? 2. Is it a wise decision to withdraw PF also by submitting a claim for buying a house and using that money to clear the existing debt? 3. We have a plan to invest 40k in Mutual fund once current debt is over. So, in order to be in a good financial position, what do we need to do?

Ans: You and your wife are a young, ambitious couple, and it's great that you're thinking about your future. Let's delve into your questions and craft a plan for a secure financial future.

Understanding Your Current Situation

High Debt: Rs. 58 lakhs with a monthly EMI of Rs. 2.18 lakhs is a significant debt burden. It's eating up a large chunk of your income, limiting your ability to save and invest for your goals.
Savings and Investments: You have Rs. 7 lakhs in savings, Rs. 10 lakhs in gold, and Rs. 8 lakhs invested in mutual funds. This shows a good foundation for future planning.
Down Payment for a House

Let's analyze using a house purchase of Rs. 1 crore:

Mutual Fund Withdrawal: You can withdraw funds from your mutual funds, but there are tax implications. Equity funds held for over 1 year attract Long-Term Capital Gains (LTCG) tax, currently at 10% (without indexation benefit). Selling before 1 year attracts Short-Term Capital Gains (STCG) taxed at your income tax slab rate. Consider the tax impact before withdrawing.

PF Withdrawal: Using your PF for a down payment is possible, but it reduces your retirement corpus. PF offers excellent tax benefits and guaranteed returns. Withdrawing it now might leave you short-handed later. Explore other options before tapping into PF.

Holistic Financial Planning

Here's a roadmap to a financially secure future:

Debt Repayment Strategy:

Prioritize Debt Repayment: Focus on paying off high-interest debt first, like credit cards. Explore debt consolidation options to negotiate a lower interest rate, reducing your monthly EMI burden.

Increase Income Streams: Consider increasing your income through side hustles, promotions, or freelance work. This extra income can be directed towards faster debt repayment.

Emergency Fund:

Build an Emergency Fund: Aim for 3-6 months of living expenses in a liquid, easily accessible savings account. This acts as a safety net for unexpected events.
Investing for Long-Term Goals:

Resume Mutual Fund Investments: Once the debt is under control, resume your monthly SIP (Systematic Investment Plan) contributions in actively managed mutual funds. These funds offer the potential for higher returns compared to fixed deposits or savings accounts to achieve your long-term goals.

Asset Allocation: Develop an asset allocation strategy based on your risk tolerance, investment horizon, and financial goals. This ensures diversification across asset classes like equity, debt, and gold to manage risk.

Seek Professional Guidance: A CFP can help you create a personalized financial plan considering your specific needs and risk profile. They can recommend suitable actively managed mutual funds based on your goals. Regular advisor interactions ensure your plan adapts to changing life circumstances.

Final Insights

Building a secure financial future takes discipline and planning. By prioritizing debt repayment, creating an emergency fund, and investing for your long-term goals, you and your wife can achieve financial freedom. Remember, consistency is key! Sticking to your financial plan and making regular investments will help you reach your financial goals.

Getting Started

I recommend consulting a professional CFP for personalized advice. They can deep dive into your specific situation, recommend suitable actively managed mutual funds based on your risk profile and goals, and create a comprehensive financial plan for your future.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in