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Ramalingam Kalirajan  |5083 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Jun 22, 2024

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 - Jun 22, 2024Hindi

Is it wise to pay off the entire bank loan on a house built on my husband's ancestorial property using entire PF money to avoid paying high EMIs? The house can never be sold as it is on a prestigious ancestorial land. I am retired and do not have any regular income. Please advice.

Ans: I understand your situation and will provide detailed advice. Let’s dive into the details to help you make an informed decision.

Understanding Your Financial Position

Your question brings up some important financial concerns. You have retired, don’t have a regular income, and are considering using your Provident Fund (PF) money to pay off a bank loan on a house. This house is on your husband's ancestral property, which holds significant sentimental value and cannot be sold. These are critical points to consider before making a decision.

The Importance of Emergency Funds

One of the primary rules in personal finance is to maintain an emergency fund. This fund should ideally cover at least six months of your living expenses. Since you are retired and do not have a regular income, it’s crucial to have a financial cushion to cover unexpected expenses such as medical emergencies or home repairs. Before using your entire PF to pay off the loan, ensure that you have set aside enough money for such contingencies.

Evaluating Your PF Money Utilisation

Using your entire PF to pay off the loan might give you relief from the high EMIs, but it will also deplete a significant portion of your savings. Given your retired status, you need to carefully consider the consequences of using this money. Once your PF is exhausted, it won’t be easy to rebuild this fund without a regular income.

The High EMI Concern

High EMIs can indeed be a burden, especially when you do not have a steady income stream. However, there are several other strategies you could consider before deciding to use your PF money. It might be worth looking into the possibility of restructuring your loan. Speak to your bank to see if you can extend the tenure of the loan, which would reduce the EMI amount, making it more manageable on a monthly basis.

Exploring Loan Restructuring Options

Banks often offer various loan restructuring options, especially for retired individuals. These options might include extending the loan term, which can significantly reduce your monthly EMIs. While this might mean paying more interest over the life of the loan, it can help ease your monthly financial burden and allow you to retain more of your PF for future needs.

Consider Partial Payments

If paying off the entire loan seems too risky, you might consider making a partial payment. This could reduce the principal amount of the loan, thus lowering your EMIs. You’ll still retain some of your PF money for future needs, and you won’t be entirely depleting your savings.

Benefits of Retaining PF Money

Your PF money is a significant safety net. It’s not just about having cash available; it’s also about the potential returns on that money. If you invest your PF wisely, it can generate returns that might help cover your loan EMIs or other expenses. Consider consulting a Certified Financial Planner to explore investment options that can provide you with regular income or growth potential.

The Emotional Value of Ancestral Property

The house being on prestigious ancestral land adds a layer of complexity. Emotional and sentimental values are important and should be factored into financial decisions. Since selling the property is not an option, it’s crucial to balance emotional considerations with financial practicality. Paying off the loan entirely might feel like a relief, but ensure it doesn’t leave you financially vulnerable.

Disadvantages of Using Entire PF

Using your entire PF money to pay off the loan means you lose out on the compounding benefits of keeping that money invested. Once spent, it’s gone, and you might face financial difficulties if any unexpected expenses arise. It’s important to maintain a balance between reducing your debt and retaining financial liquidity for future needs.

Exploring Alternative Investment Options

Instead of depleting your PF, consider investing in mutual funds through a Certified Financial Planner. Regular funds, managed by experienced professionals, can offer better returns compared to direct funds. This strategy can provide a steady stream of income, which could help in managing your loan EMIs without exhausting your savings.

Benefits of Actively Managed Funds

Actively managed funds have the potential to outperform the market because they are managed by experts who make strategic decisions based on market conditions. While these funds may have higher fees than index funds, the professional management can lead to better returns, especially in a volatile market. By investing in these funds, you can generate returns that might help offset your loan payments.

The Role of Certified Financial Planners

Certified Financial Planners can help you create a diversified investment portfolio tailored to your risk tolerance and financial goals. They provide personalized advice, ensuring that your investments align with your need for income and growth. Working with a professional can help you make informed decisions, rather than depleting your PF.

Ensuring Financial Security

Financial security in retirement is paramount. Your focus should be on maintaining a steady income stream and preserving your savings. Consider all possible options to manage your loan without compromising your financial future. Consult with a Certified Financial Planner to explore ways to generate income from your investments and manage your debt efficiently.

Exploring Family Support

In situations involving ancestral property, family dynamics can play a crucial role. Discuss your financial situation with your family. There might be other family members willing to contribute towards the loan payments, especially if the property holds significant sentimental value for the entire family. Collaborative efforts can ease the financial burden on you.

Evaluating Long-term Financial Health

Consider the long-term implications of using your PF money. Retirement can last many years, and it’s important to ensure that your funds last. Evaluate your monthly expenses, potential future costs, and how much income you need to sustain your lifestyle. A detailed financial plan can help you make the right decision about your PF money.

Medical and Health Considerations

Healthcare costs can be a significant concern in retirement. Ensure you have adequate health insurance and set aside funds for medical emergencies. Using your PF to pay off the loan might leave you financially exposed if unexpected health issues arise. Prioritize your health and financial security.

The Importance of Diversification

Diversifying your investments is key to managing risk and ensuring stable returns. Instead of putting all your money into paying off the loan, consider spreading your investments across different asset classes. This can help mitigate risks and provide you with multiple income streams, enhancing your financial stability.

Benefits of Regular Investment through CFP

Investing through a Certified Financial Planner can provide access to a range of financial products suited to your needs. Regular investments in mutual funds, managed by professionals, can offer better returns and financial security. These planners can help you create a balanced portfolio, aligning with your retirement goals.

Financial Education and Empowerment

Empower yourself with financial knowledge. Understanding the basics of investments, market dynamics, and personal finance can help you make better decisions. Regular consultations with a Certified Financial Planner can provide you with the education and tools needed to manage your finances effectively.

Final Insights

Deciding to use your entire PF money to pay off a loan is a significant decision that requires careful consideration. Balancing the emotional value of your ancestral property with your financial security is key. Explore alternative options like loan restructuring, partial payments, and investing through a Certified Financial Planner. Maintaining an emergency fund, ensuring health coverage, and diversifying your investments will help secure your financial future. Consult with a financial expert to create a comprehensive plan that aligns with your retirement goals and provides peace of mind.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

DISCLAIMER: The content of this post by the expert is the personal view of the rediffGURU. Users are advised to pursue the information provided by the rediffGURU only as a source of information to be as a point of reference and to rely on their own judgement when making a decision.

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Ramalingam Kalirajan  |5083 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on May 07, 2024

Asked by Anonymous - Apr 30, 2024Hindi
Hello Sir, I m 44 year old women having 29 lakhs in equity & ELSS, 6 lakhs in PPF and 25 lakhs in FDs...I have retired now as was tired of doing sales job ..my question is I have 12 lakhs home loan to repay...my monthly expenses is 25k ...shall I pay that loan amount entirely now or the emi of 23 k till 2029 is feasible in my case?..
Ans: Considering your financial situation and retirement status, let's evaluate both options:

Paying off the Home Loan Entirely:
Eliminates the burden of debt and interest payments, providing peace of mind and financial freedom.
Saves on interest payments over the loan tenure, potentially resulting in significant savings in the long run.
Paying off a substantial portion of your savings (12 lakhs) may reduce your liquidity and emergency fund.
Evaluate whether you'll have enough savings left for emergencies and to maintain your desired lifestyle.
Continuing with EMI Payments:
Preserves your savings and liquidity, allowing you to maintain a financial cushion for emergencies and unexpected expenses.
The EMI of 23k per month may be manageable given your monthly expenses of 25k, allowing you to maintain your lifestyle.
You'll continue to have the burden of debt and interest payments for the duration of the loan tenure.
Evaluate whether you're comfortable with the ongoing financial commitment and potential interest payments over the long term.
Factors to Consider:

Emergency Fund: Ensure you have an adequate emergency fund to cover at least 6-12 months of living expenses.
Investment Opportunities: Consider whether you can potentially earn higher returns by investing the lump sum amount elsewhere.
Peace of Mind: Assess the psychological benefit of being debt-free versus having ongoing loan payments.
Ultimately, the decision depends on your individual preferences, risk tolerance, and financial goals. If being debt-free brings you peace of mind and you have sufficient savings for emergencies and retirement, paying off the loan entirely may be a prudent choice. However, if you prefer to maintain liquidity and have confidence in managing the EMI payments comfortably, continuing with the EMI payments could also be a viable option. Consider consulting with a financial advisor to assess the best course of action based on your specific circumstances.

..Read more


Ramalingam Kalirajan  |5083 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Jun 19, 2024

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,


..Read more

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DISCLAIMER: The content of this post by the expert is the personal view of the rediffGURU. Investment in securities market are subject to market risks. Read all the related document carefully before investing. The securities quoted are for illustration only and are not recommendatory. Users are advised to pursue the information provided by the rediffGURU only as a source of information and as a point of reference and to rely on their own judgement when making a decision. RediffGURUS is an intermediary as per India's Information Technology Act.


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