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Ramalingam Kalirajan |2756 Answers |Ask -Follow

Mutual Funds, Financial Planning Expert - Answered on May 09, 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 - May 09, 2024Hindi

I have about 40 lakhs in equity MF, 40 lakhs in pf. Currently making 1 lakh SIP per month. In hand salary is 3.25 lakh/month. I plan to purchase a house worth 1.5 Cr. I'll soon get a lump sum amount of 60 lakhs. Should I use that to pay larger upfront for the house or invest it to pay future payment from returns? I am 37 yrs old male. Monthly expense is about 1 lakh inclusive of rent.

Ans: Here's a breakdown of your situation to help you decide whether to use the lump sum for a larger down payment or invest for future EMIs:

Factors to Consider:

Down Payment Impact: A larger down payment reduces your loan amount, leading to lower interest payments overall. This can save you a significant amount of money in the long run.

Investment Potential: Investing the lump sum could potentially generate returns that help cover future EMIs. However, market performance is not guaranteed.

Emergency Fund: Ensure you have a sufficient emergency fund after using the lump sum (ideally 3-6 months of living expenses).

Risk Tolerance: Investing the lump sum involves market risks. Consider your comfort level with potential fluctuations.

Here are two approaches to consider:

Option 1: Larger Down Payment:

Use a significant portion of the lump sum (say 40-50 lakhs) for a larger down payment. This can bring down your loan amount substantially, reducing your overall interest burden.
Invest the remaining amount (20-30 lakhs) to potentially generate additional income or create a buffer for future expenses.
Option 2: Invest and Pay EMIs:

Invest the entire lump sum (60 lakhs) in a diversified portfolio to potentially generate returns that can cover future EMIs.
This frees up your monthly income for other expenses or investments. However, market performance can impact returns.
Here are some additional thoughts:

Interest Rates: Compare current home loan interest rates with the potential returns you might expect from your investments.
Debt Management: Consider your overall debt situation. A larger down payment can improve your debt-to-income ratio, potentially making you eligible for better loan terms.
Professional Advice: Consulting a financial advisor can help you create a personalized plan considering your risk tolerance, financial goals, and investment horizon.
Here's a quick summary of your financial situation:

Strong Savings: With Rs. 40 lakh in MFs, Rs. 40 lakh in PF, and a Rs. 1 lakh monthly SIP, you have a solid savings foundation.
High Income: Your in-hand salary of Rs. 3.25 lakh per month provides significant financial flexibility.
House Purchase: Aiming for a Rs. 1.5 crore house indicates a long-term investment plan.

Ultimately, the decision should align with your risk tolerance, financial goals, and overall financial plan. Consulting with a Certified Financial Planner can provide personalized guidance tailored to your specific circumstances, helping you make informed decisions to achieve your objectives.

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

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