Hi, I have 43L and I'm planning to buy a flat worth 1.4Cr. It is due completion in 2029. So I can either put in more now or at the end. I have decided to do below.
Pay 10% since it's compulsion, now I have 30lacks with me. My biggest advantage now is time. So I have invested lumpsum of 20L in PPFAS Flexi cap and 10L in HDFC Balanced Fund. I have a loan sanctioned of remaining amount 1.2Cr. My question is, in 5yrs time, should I use 87L from loan and use whatever I get from these MF's or should I stay invested in MF's and use full loan amount of 1.2cr instead?
My plan was to pump in additional 30k per month if I use only 87L from loan as my EMI would be less and 8-10yrs down the line, I can apply for PreClosure.
What's the best way forward? Use full loan amount and pay higher emi and keep my 30L in MF intact or use partial loan amount, pump in additional sip and utilize what I get to foreclosure of loan?
Other details, 30M, Monthly Exp around 50k. I am investing 35k in SIP, 50k for various plans, ULIP, insurance ROP, Assured returns etc. I consider these as debt instruments in my investments. End goal is to save enough for retirement and an additional real estate asset worth 1.5cr before retiring.
Ans: You have Rs 43 lakhs and plan to buy a flat worth Rs 1.4 crores due for completion in 2029. Here's an analysis of your options:
Current Investment Plan
1. Initial Payment:
Paid 10% (Rs 14 lakhs) upfront.
Remaining Rs 30 lakhs available.
2. Investment Allocation:
Rs 20 lakhs in PPFAS Flexi Cap Fund.
Rs 10 lakhs in HDFC Balanced Fund.
3. Loan Details:
Sanctioned loan amount: Rs 1.2 crores.
Option 1: Partial Loan and Additional SIP
1. Plan:
Use Rs 87 lakhs from the loan.
Use returns from mutual funds for the rest.
Pump in an additional Rs 30k per month as SIP.
2. Benefits:
Lower EMI, making it easier to manage monthly expenses.
Ability to invest more monthly, enhancing wealth creation.
Option to pre-close the loan in 8-10 years.
3. Considerations:
Assess the expected returns from mutual funds.
Ensure the investments outperform the loan interest rate.
Option 2: Full Loan Amount
1. Plan:
Use the full Rs 1.2 crores loan.
Keep the Rs 30 lakhs in mutual funds.
2. Benefits:
Larger loan amount may offer tax benefits.
Investments remain intact and grow over time.
Flexibility to use investment returns for other goals.
3. Considerations:
Higher EMI impacts monthly cash flow.
Loan tenure may be longer, increasing interest paid.
Comparative Analysis
1. Loan Interest vs. Investment Returns:
Compare the loan interest rate with the expected returns from mutual funds.
If mutual fund returns are higher, keeping investments intact might be beneficial.
2. Monthly Cash Flow:
Evaluate your ability to manage higher EMIs.
Consider the impact on your overall financial stability.
3. Pre-closure Option:
With lower EMIs, pre-closure of the loan becomes feasible.
Additional SIP investments can create a pre-closure fund.
Recommendations
1. Balanced Approach:
Use a mix of both options.
Opt for a partial loan and keep some investments intact.
2. Regular Review:
Monitor your mutual fund performance regularly.
Adjust investments and loan repayments based on market conditions.
3. Financial Goals:
Align your investments with long-term goals like retirement.
Diversify your portfolio to balance risk and returns.
Final Insights
Considering your goals, a balanced approach of partial loan and maintaining investments is optimal. Regularly review and adjust based on performance and market conditions.
Best Regards,
K. Ramalingam, MBA, CFP
Chief Financial Planner,
www.holisticinvestment.in
