I’ve saved 5 lakhs in my checking account. Should I take advantage of it to repay my residence mortgage or ought to I spend money on equities? Please counsel.
The determination whether or not to prepay or not will depend upon varied components. The main issue is whether or not you’ll be able to earn extra earnings on the funds than the speed of curiosity being paid on your house mortgage after contemplating the tax advantages obtainable to you. One extra issue which performs an necessary position is psychological causes of being debt free.
A lump sum funding in fairness isn’t suggested. If you want to spend money on fairness you need to do it via systematic switch plan (STP) the place you place the lump sum cash in liquid fund and from there the cash will get invested in scheme of your alternative.
If you want to use the sum in a lump sum method, you need to use it to prepay the house mortgage somewhat than investing in fairness regardless that the post-tax curiosity price on residence mortgage may be fairly low in your case. A mortgage may be pay as you go both partly or in full at any given level of time. Some lenders might cost you a pre-payment price on the principal quantity pay as you go. Please assess the fund necessities in close to future earlier than you are taking the ultimate determination on prepayment of your house mortgage as in case you want fund in future, you will be unable to borrow on the charge at which you get residence mortgage. So along with contingency wants bear in mind the fund requirement in close to future on the time of paying the house mortgage past the common EMI. Finally you must also contemplate the tax deduction advantages obtainable on a house mortgage and the likelihood to deploy it at increased return than the post-tax curiosity price.
Balwant Jain is a tax and funding professional and may be reached at [email protected] and @jainbalwant on Twitter
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