Prepay Plot loan vs Invest in Equity for 5 - 6 years?

Q & A Forum › Category: Home Loans & Credit › Prepay Plot loan vs Invest in Equity for 5 – 6 years?

Bharghav asked 9 years ago

Hi Sreekanth, I need some clarification, which I am pondering over for quite some days. We have bought a residential land and have taken a loan for that (say 40L - Interest rate = 8.65% tenure - 15 years) We are planning to construct the house after some years and live there So from next month on wards, our EMI will start. In my current situation, If I get addtional Surplus or lumpsum amount (due to a career change) should I prepay my Plot loan or to invest in Equity. Since I am not planning on constructing the house for min 5 - 6 years, Should I invest the additional money into Equity funds (with the expected return of 12-15%) Vs Against the Plot loan interest of 8.65% ? Or should I go back and clear off the Plot loan as much as I can with my additional amount ? How do you approach this scenario? and please advise on how should I approach. Thanks in advance Regards BR

3 Answers

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Sreekanth Staff answered 9 years ago

Dear BR, May I know more about your other high priority Financial goals & time-frame. Have you been investing adequately for these goals? Have you already planned for these? Is it a fixed rate or floating rate loan? (Kindly note that as it is a plot loan, you can not claim tax benefits on the EMI payments, hope you are aware of this..)

Bharghav replied 9 years ago

Hi Sreekanth

Thanks for the reply

I am 27years old. I do have other goals like retirement planning, corpus for house construction

And am recently married so no other commitments as of now

I m saving for my retirement fund separately apart from the emi outgo

However I am now thinking should I prepay the plot loan or save the additional amount towards my home construction corpus

Yes I do know the fact that I cannot claim deductions for plot loan with respect to income tax

Please advise

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Sreekanth Staff answered 9 years ago

Hi, Given your age and current profile, may be you are better off investing in Equity oriented funds for next few years. Also, the interest rate on your loan is reasonable and we may expect the Lending rates to be on the lower end, for at least next couple of years. Suggested readings : https://www.relakhs.com/top-best-balanced-mutual-funds-returns/ https://www.relakhs.com/best-mutual-fund-schemes-2017/ https://www.relakhs.com/list-of-best-investment-options-schemes-in-india/

Bharghav replied 9 years ago

Hi Sreekanth

Thanks for the answer

May I ask you one more question

Is there an article with respect to Mutual Fund Investments in India for NRI (especially US) I heard that there is some complications for the US based NRI

If you have already have one could you please point out else I would request you to consider writing one.. It will help us a lot

Thanks in advance

Regards
BR

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Sreekanth Staff answered 9 years ago

Hi, Are you referring to FATCA compliance requirement? Suggested readings : https://www.relakhs.com/fatca-compliance-requirements-impact-mutual-fund-investments/ https://www.relakhs.com/ckyc-central-kyc-mutual-funds-shares/