MF QueryBoard

I am 22-years old and want to invest Rs 40,000 per month via SIP mode for 3 years and hold the total investment for the next 5 years. After 3 years, I plan to take home loan of Rs 30 lakh for 15 years. I wish to pay all my EMIs of the home loan after 8 years from now. Kindly suggest whether this would be right or by doing so, will I break any income tax law?

The funds selected for my investment is as follows: -

1. SBI small-cap fund-10,000
2. Mirae asset large-cap fund-10,000
3. Axis mid-cap fund -10,000
4. SBI banking and financial services fund-10,000

- Manish Kumar 



At first, let us briefly explain what we have understood from your query:

You wish to buy a home after 3 years for which you are planning to take a home loan of Rs 30 lakh with loan tenure of 15 years.
After 8 years from now, you want to pay off your remaining EMI of 7 years and foreclose the home loan.
For the goal of foreclosing your home loan after 8 years, you wish to invest Rs 40,000 per month via SIP for the first 3 years and then stop the SIP and stay invested for the next 5 years. n For this, you also need to know whether you are breaching any income tax laws and whether it is possible to do this at all.

Assuming 8 per cent rate of interest on your home loan, you would be paying an EMI of Rs 28,670 per month. To foreclose your loan after 8 years, you would need Rs 18.39 lakh (This would be your principal loan outstanding after 96 months or 8 years) Now if we assume that your investment would earn Compounded Annual Growth Rate (CAGR) of 10 per cent, then your 3-year SIP of Rs 40,000 would become Rs 16.74 lakh. Further, if you stay invested for the next 5 years with the same rate of returns, you would be able to accumulate Rs 26.95 lakh. Looking at the above figures, we can say that you can indeed foreclose the loan easily after 8 years and also have a surplus left with you. Besides, if you put your money in bank FDs fetching you 5 per cent post-tax returns, it would also be more than enough to foreclose your loan, as with this, you would be able to accumulate Rs 19.83 lakh. Regarding the funds selected by you, they are indeed good. However, they are meant for long-term investing. Also, by foreclosing your loan, you are not breaching income tax laws. The thing that you would be missing by foreclosing your loan is the income tax deductions available on home loan. However, our recommendation would be that you better get a portfolio consisting of large-cap fund and gilt fund. This would help you not just in capital appreciation, but also to provide cushioning when the equities turn unfavourable. Also, we would recommend you to have a financial plan to take care of other financial goals as well.


My age is 40 and I am paying a premium towards life insurance for the last 18 years and my financial advisor asked me to surrender the same and invest via SIP in Mirae Asset Large Cap Fund and Kotak Bluechip Fund. Kindly guide me as what should I do next?
- Surendra Purshottam 

First of all, it is important to understand that keeping investment and insurance separate is the best practice. This assures that you get the maximum benefit from the best of both worlds. So, it is always better to have a term plan for your insurance needs and invest in mutual funds for your investment. If you are having a traditional insurance policy such as endowment or money back or the like, then it makes sense to discontinue them and invest in mutual funds. However, if you have already paid more than half of the premiums then it is better to continue the policy as surrendering the policy would not benefit you much. In your case, you have not mentioned the actual tenure of the policy so, cannot comment on whether you should surrender the policy or not. However, if you are surrendering the policy then, make sure that you have the required amount of term insurance in place. Regarding the funds, both have performed well in the long-term. However, it would be better to plan your objective before investing. Consider investing in these funds if your investment horizon is 5 years or more. Also with this, you need to have a proper asset allocation in place based on your risk profile that you must re-balance annually. Following is the performance of the funds for your reference: