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I want to close by Home Loan. Should I prepay the loan or invest in mutual funds?

Which option is better to close it faster?

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1 Approved Answer

Ritika

A proper cost benefit analysis needs to be done whether to invest while repaying  for home loans or no.

Few important factors taken under consideration are:

when you are investing reasonably in mutual funds, expecting a return of 12% annually, the returns will be much higher as compared to the prepaid expenses for home loans. This can be explained with the help of following table:

(*Assume 14% returns on mutual funds)

Considering case 2:

Now as we see from both the cases above, by investing in mutual funds, post 10 years, you do have a reasonable amount of returns  which will help you repay your loans completely post 10 years.

But when you prepay your home loan, you are still left to pay 7 lakhs after 10 years

So this is one benefit to invest in mutual funds rather than prepaying your expenses.

Other benefits include:

The principal component of your EMI of home loan will be considered for tax benefit under Section 80C. Even interest paid on home loan has exemption of up to 2 lakhs every year under Section 24. Apart from this by investing in mutual funds you can withdraw your money as and when you want (under certain schemes) which will help you maintain liquidity during an emergency. The only concern here is that you should be investing wisely in mutual funds, since it also depends on market conditions how the returns turn out to be, but moreover once you are accustomed with it , it'll be lifelong beneficial for you to invest in funds and get good amount of returns.

Mutual fund investments are subject to market risks. Please read the scheme information and other related documents carefully before investing.
Past performance is not indicative of future returns. Please consider your specific investment requirements, risk tolerance, investment goal, time frame, risk and reward balance and the cost associated with the investment before choosing a fund, or designing a portfolio that suits your needs.
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