I have Rs 85 lakh remaining in home loan. I recently inherited Rs 20 lakh. Should I repay my loan or invest?

I am 45 years old. My monthly income is Rs 2 lakh. I have a home loan EMI of Rs 70000. I have invested Rs 10 lakh in mutual funds and another Rs 5 lakh in fixed deposits. My monthly mutual funds commitment is around Rs 20,000. I recently inherited Rs 20 lakh.
Should I use this money to pay off my home loan, or should I invest it for the future? The remaining home loan amount is close to Rs 85 lakh.

Reply by Atul Monga CEO and Co-founder, BASIC Home Loan

When deciding between paying off a home loan or investing, it’s important to consider several aspects including interest rates, potential investment returns, tax implications, and your overall financial security. Let’s examine both options closely

Option 1: Paying Off the Home Loan
Paying off your home loan in entirety or significantly reducing your loan balance would save interest outgo over the years. Additionally, it can also increase your monthly disposable income, which can be redirected towards fulfilling your other financial goals. Note that using a large sum to pay off your loan can reduce your liquidity. This can have a bearing on your investments or emergency savings.

Option 2: Investing the Money
Considering you have already invested Rs 10,00,000 in mutual funds amounting to Rs 20,000 on a monthly basis and Rs 5,00,000 in FDs, you need to take into account certain key aspects such as potential returns provided by mutual funds. Additionally, also consider investments that offer compounding growth and tax benefits combined with equity taxation for long-term wealth creation. However, the only flip side would be the volatility of stock trading subject to market risks yielding variable returns.

However, since your remaining large-sized home loan carries a significant monthly EMI, you may consider using a portion of your inherited wealth to effectively reduce the loan principal. This will essentially help either lower the EMI amount or shorten the loan-term, thereby saving interest. You may choose to invest the remaining amount in a balanced portfolio that can help grow your wealth, ensure maintenance of liquidity and safeguard you for emergencies.

(Views expressed by the investment expert are his/her own. E-mail us your investment queries at askmoneytoday@intoday.com. We will get your queries answered by our panel of experts.)

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