Skip to main content

Smart ways to deal with sudden lumpsum income

Invest In Tax Saving Mutual Funds Online

Call 0 94 8300 8300 (India)

 

The smart ways to invest in case of a lump sum income is generated. Although, it may be a good option to pay off loans, planned investment would be a better way of handling debt.

 

Pavitra received Rs 3.5 lakh from the sale of a family property in her native place. She has a housing loan of Rs 30 Lakhs for which she is paying a monthly EMI of Rs 35,000. She has completed 2 years of the 7 years of the loan tenure. Pavitra is thinking about repaying a part of the loan with the entire inheritance amount, while her husband is of the opinion that they must invest a part of it for their children's education in mutual funds or equity shares.

 

Often, these complex decisions spring in front of us when confronted with a lump sum gain on one hand and a mortgage on the other. In case of a car loan or a personal loan, the choice is very clear - one must repay the loan as soon as possible as the interest is very high and the value of a loan investment only depreciates.

 

Besides, these loans do not have a long tenure as housing loans have.

 

Home Loan Outlook

 

In Pavitra's case, at a monthly interest of 10.5 percent, she ends up paying around Rs 3,15,000 annually only on the interest amount which works out to Rs 47,25,000 in 15 years, raising the cost of the house by over 50 percent.

 

If she uses her inheritance money to repay the loan, the number of instalments she has to pay will be reduced which implies that the total amount to be repaid will be reduced since the duration of the loan will come down from the remaining 5 years to just under 4 years

 

Comparative Analysis of Actual Savings and Growth of Corpus

 

How much benefit you accrue from investing on an alternate source depends on the type of investment you are making. In Pavitra's case, if instead of repaying the home loan, she would have invested the amount in purchasing a Blue Chip Fund or a child plan for her daughter's education, the returns cannot be forecasted.

 

However, if the blue chip fund returns after 3 years' investment were to give her a return of Rs 8 Lakhs then she would be able to pay off a bigger chunk of her debt and saved 2 years' instalments instead of 1 year.

 

Another scenario is where a person might also have a personal or a car loan. In such a case, it is best to pre-pay that loan first as the interest rate is higher in the shorter term.

 

A Case for Prepayment

 

The greatest advantage of pre-payment of a loan is that it significantly reduces the interest cost which will bring down the purchase price of the house by a large amount. So, even if you are considering reselling the property to purchase a bigger property in the future, you will be able to recover the cost faster and make better profits.

 

However, you must understand that you have already paid the loan processing charges for the entire tenure; so, if you are earning better returns elsewhere, then you can consider it so that you can utilise the returns to pay off a bigger portion of the loan.

 

Tax Rebate

 

Home loans attract a tax rebate under the Income Tax Act, so often individuals prefer to continue their loan for the entire duration. However, if you are paying an EMI of Rs 35,000 and your tax saving is Rs 1000; it does not appear to be a very big saving.

 

Besides, there are other tax saving avenues which are more beneficial. You could even invest in another property as real estate delivers the highest returns among all investment classes.

 

What are the Investment Avenues in Such Cases?

 

If you do not want to prepay your loan with the extra amount you have, then there are the following investment options:

 

• Equity: If you have a high risk appetite, then investing in equity can generate more returns than you would have saved from pre-paying the home loan.

 

• Real Estate: You can invest in another property. It would mean an additional loan, but if you can earn a rental income, then the loan will get repaid partly by the rental returns. Besides, you can sell one property to leverage the loan repayment for the other property.

 

• Provident Fund: PPF gives you a tax benefit for the entire Rs 1 Lakh you deposit in the account and attracts an interest of around 8 percent. You must ensure that you complete the entire deposit amount for the year before paying off the debt. This will also set up a savings corpus for the future.

 

You have to pay the EMI on your housing loan till it is completely repaid. The EMI and the interest rate amount also remain constant. On the other hand, the return on investment from equities fluctuates and from secured bank deposits, the interest rate is not as high as it is on the loan.

 

If you are nearing retirement, it is most likely you are close to the final installment of your home loan. If you repay your home loan earlier, you can concentrate on savings and investment for your post-retirement years

 

For those who are younger and still have a few years, do not compromise on your other financial responsibilities such as insurance premiums, child plans, savings corpus to pay off the home loan.

Happy Investing!!

We can help. Call 0 94 8300 8300 (India)

Leave your comment with mail ID and we will answer them

OR

You can write back to us at PrajnaCapital [at] Gmail [dot] Com

---------------------------------------------

Invest in Tax Saving Mutual Funds ( ELSS Mutual Funds ) to upto Rs 1 lakh and Save tax under Section 80C.

Invest Tax Saving Mutual Funds Online

Tax Saving Mutual Funds Online

These links can be used to Purchase Mutual Funds Online that are regular also (Investment, non-tax saving)

Download Tax Saving Mutual Fund Application Forms from all AMCs

Download Tax Saving Mutual Fund Applications

These Application Forms can be used for buying regular mutual funds also

Some of the best Tax Saving Mutual Funds available ( ELSS Mutual Funds )

  1. ICICI Prudential Tax Plan Invest Online
  2. HDFC TaxSaver Invest Online
  3. DSP BlackRock Tax Saver Fund Invest Online
  4. Reliance Tax Saver (ELSS) Fund Invest Online
  5. Birla Sun Life Tax Relief '96 Invest Online
  6. IDFC Tax Advantage (ELSS) Fund Invest Online
  7. SBI Magnum Tax Gain Scheme 1993 Invest Online
  8. Sundaram Tax Saver Invest Online
  9. Edelweiss ELSS Invest Online

------------------

Best Performing Mutual Funds

    1. Largecap Funds Invest Online
      1. DSP BlackRock Top 100 Fund
      2. ICICI Prudential Focused Blue Chip Fund
      3. Birla Sun Life Front Line Equity Fund
    2. Large and Midcap Funds Invest Online
      1. ICICI Prudential Dynamic Plan
      2. HDFC Top 200 Fund
      3. UTI Dividend Yield Fund
    1. Mid and SmallCap Funds Invest Online
      1. Reliance Equity Opportunities Fund
      2. DSP BlackRock Small & Midcap Fund
      3. Sundaram Select Midcap
      4. IDFC Premier Equity Fund
    1. Small and MicroCap Funds Invest Online
      1. DSP BlackRock MicroCap Fund
    1. Sector Funds Invest Online
      1. Reliance Banking Fund
      2. Reliance Banking Fund
    1. Tax Saver MutualFunds Invest Online
      1. ICICI Prudential Tax Plan
      2. HDFC Taxsaver
      3. DSP BlackRock Tax Saver Fund
      4. Reliance Tax Saver (ELSS) Fund
    2. Gold Mutual Funds Invest Online
      1. Relaince Gold Savings Fund
      2. ICICI Prudential Regular Gold Savings Fund
      3. HDFC Gold Fund

Popular posts from this blog

ICICI Pru Mutual Fund Dividend

ICICI Prudential Mutual Fund has announced dividend under the following schemes: Scheme Dividend ( Rs /unit) ICICI Pru Capital Protection Oriented Ser V Plan B-D 0.03611325 ICICI Pru Capital Protection Oriented Ser V Plan B Direct-D 0.03611325 ICICI Pru Balanced Advantage Direct-DM 0.06 The record date has been fixed as February 08, 2017. ------------------------------ ------ Invest Rs 1,50,000 and Save Tax upto Rs 46,350 under Section 80C. Get Great Returns by Investing in Best Performing ELSS Funds Top 4 Tax Saver Mutual Funds for 2017 - 2018 Best 4 ELSS Mutual Funds to invest in India for 2017 1. DSP BlackRock Tax Saver Fund 2. Invesco India Tax Plan 3. Tata India Tax Savings Fund 4. BNP Paribas Long Term Equity Fund Invest in Best Performing 2017 Tax Saver Mutual Funds Online Invest Best Tax Saver Mutual Funds Online Download Top Tax Saver Mutual Funds  Application Forms For further information contact  SaveTaxGetRich on 94 8300 8300 ------------------------------ ------ Leave y...
Read more

What is Financial Freedom?

Invest In Tax Saving Mutual Funds Online Download Tax Saving Mutual Fund Application Forms Buy Gold Mutual Funds Call 0 94 8300 8300 (India)     There were many things common between our Freedom fighters. All had the Single vision (Free India), common goal (independence) and had a disciplined and focused approach. They were ready to do anything and everything and had made so many sacrifices to see India free . But the road to freedom was not easy .They had faced lot many hardships, went to jail so many times and even confronted physical and mental torture from the British. There was one more thing which proved to be an advantage to our fighters that most of them were professional lawyers. The knowledge of legal issues and its impact on our country at large has helped them counter various bills and proposed new laws by the then government. It is due to their continuous effort that we are able to achieve the goal of Independent Indi...
Read more

Hidden Bank Fees

  What Banks Hide From Customers Imagine after a peaceful and exciting holiday you receive your bank statement with steep charges. You then rush to your bank and start confronting staff members and to your dismay, you come to know that the high end debit card was charged very heavily. Wouldn't this cause damage to your finances? So remember, the world outside is full of deceptive and double cheating people. Unethical practices are always used by company sales person in order to meet the target. Credit card companies, mutual funds and bank institutions always play dirty tricks to lure customers and the practices are rampant. So here's how you should be careful while dealing with your banks: High End Debit Card Charges While opening an account with a bank you opt for a debit card with minimal charges. But later on when you upgrade your card and opt for high end debit card the annual charge rise by a good amount. Though such a card has slew of features but it all comes at a high ...
Read more

Partial withdrawal from PPF

  Public Provident Fund (PPF) account has a lock in period   If you opened a PPF account to meet your retirement needs,, think twice about withdrawing from this fund before retirement. But provided it's an emergency here are the rules. Public Provident Fund (PPF) account has a lock in period before which you cannot withdraw your money.   The partial withdrawal is allowed after the completion of 6 financial years . This means that you will be allowed a partial withdrawal from 1 April 2017. The maximum partial withdrawal allowed is the least of the following: 50 percent of the account balance at the end of fourth financial year, 31 March 15 50 percent of the account balance of the end of previous financial year, 31 March 17.   There's a loan option available on your PPF account between the fourth and the sixth financial year. You can obtain a loan of up to 25 per cent of the balance in your account. However, this will attract interest of 2 percent more than the prevailing ...
Read more

Updating a minor PAN card upon becoming adults

  Updating a minor's PAN card once they become adults A PAN card issued in the name of a minor does not contain the minor's photograph or signature, and therefore, cannot be used as a valid proof of identity. Once a minor PAN card holder turns 18, the relevant changes must be made in the PAN records. A new card is then issued bearing a photograph and signature. Application The applicant is required to fill up the "Request for new PAN card andor changes or correction in PAN data" form. The form can be filled up online by accessing NSDL's Tax Information Network website and clicking on the online PAN application tab. Information The applicant must mention the existing PAN number in the application and check the `photo mismatch' and `signature mismatch' boxes, and submit the online form. The form must also be printed out, signed by the applicant, and submitted along with two photographs. Documents Identity and address proof in the form of a copy of the app...
Read more
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now