Should you start an SIP or prepay a home loan?


The answer to this question depends on your own financial calculations. Let’s discuss it one by one.

  1. SIP – I am assuming that you will be starting SIP for the Equity Mutual fund. in this case, the risk is there but benefits will also be there if you keep investing for the long term. So in the short team, you may see the investment going Red or Green occasionally. — it’s by choice.
  2. Home Loan – it’s mandatory, you may need to keep paying the EMI and any miss of the EMI will impact your CIBIL. The amount of the money that you are paying as Interest is something that you need to check and based on it you can take the decision.— this needs to be closed as early as possible, but paying a home loan doesn’t mean you should not invest in SIP.

My Stand – I have both Personal Loan and SIP’s. while taking HL I kept the tenure to 10 years only where I am paying more amount as EMI but the total interest paid is less compared to tenure of 15 years or 30 years.

So if I get any additional money – I invest in Debt Mutual Fund, Gold, FD – But why not equity?

Equity is risky and I am a moderate risk taker – I am already investing a good amount in Equity SIP’s and some stocks on monthly basis so whatever additional money that I am getting, I don’t want to make it a risky investment, I want to keep some money handy and with fixed return low risk so that if required, I can use it for any emergencies.

Why I am not closing home loan – Income Tax benefits – as I mentioned, the tenure is less and interest paid is also less, so whatever I am paying as Interest [more or less], I use to declare it for Tax exemption {it may sound weird}. I have a plan to close it when I plan for some other property and till that time, my other low-risk investment matures and I can withdraw it. The withdrawal is only from the low-risk investment, equity is still continuing, it’s long-term and I never touch it.

Important Note: In this cycle on Loan and Investment, make sure you first keep 3 -6 month expenses as an emergency fund. This helps you in your bad time.

An advice to you – if you have 100 Rs handy and if your loan amount is too high, then I would say pay 75 Rs to prepaying HL and 25 as an investment in MF. You can make it 80:20 as well, it’s up to you but make it a balanced approach. The HL is the cheapest interest loan available in the market.

Author: Neel G
Source: Quora


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