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

Surrender ULPPs

  ICICI Pru LifeTime and ICICI Pru Lifestage are Unit Linked Pension Plans. Such insurance linked retirement plans are neither good investments nor do they offer sufficient insurance cover. As you can see, these have turned out to be bad deals. In the Lifetime plan, the fund value is not even equal to the total premiums that you have paid and in the Lifestage plan your return is just about 6% which is quite low. The mortality charges are as per your age which is why they have increased. Moreover, once these plans matures, you will have to compulsorily opt for annuity (regular income) and the annuity rates are generally modest. Assuming these plans mature in the next one year, it will be wise to surrender the plan now and curb your future commitments.   Before you choose to buy a term plan, you have to consider a few points. You need to insure yourself, only during the time you are working and your family is financially dependent on you. At the age of 59, not all insurance companies w...
Read more

NPS Investment Choice for Safe Investors

Invest NPS Online       Whether they invested through SIPs or put in a lump sum amount, risk-averse individ uals have earned the highest returns. These are investors who stayed away from stocks and divided their NPS corpus between G class gilt funds and C class corporate debt funds. On average, gilt funds have given 9.75% annualised returns while corporate debt funds have churned out more than 11% in the past five years. As a result, the average return for ultra-safe investors in the past five years is in double digits. Even in the short term, ultrasafe investors have been the biggest gainers among NPS investors. Will the good times continue? The gilt funds of NPS are holding long-term bonds with an average maturity of over 19 years and a modified duration of about 9 years.These funds have done well because interest rate cuts have pushed down bond yields. But experts say this trend will not stay forever. NPS is a long-term investment and the bonds are predominantly held to matu...
Read more

ICICI Pru Constant Maturity Gilt dividend

Invest ICICI Prudential Constant Maturity Gilt Fund Online ICICI Prudential Mutual Fund   has announced dividend under the following schemes: Scheme Dividend ( R /unit) ICICI Pru Constant Maturity Gilt-DQ 0.26543239 ICICI Pru Constant Maturity Gilt Direct-DQ 0.27171609 ICICI Pru Q Interval Plan I-D 0.10617296 ICICI Pru Q Interval Plan I Direct-D 0.10703967 ICICI Pru Q Interval Plan I Ret-D 0.10617296             The record date has been fixed as June 13, 2016.   ----------------------------------------------- Invest Rs 1,50,000 and Save Tax under Section 80C. Get Great Returns by Investing in Best Performing ELSS Mutual Funds Top 10 Tax Saver Mutual Funds to invest in India for 2016 Best 10 ELSS Mutual Funds in india for 2016 1. BNP Paribas Long Term Equity Fund 2. Axis Tax Saver Fund 3. Franklin India TaxShield 4. ICICI Prudential Long Term Equity Fund 5. IDFC Tax Advantage (ELSS) Fund 6. Birla Sun Life Tax Relief 96 7. DSP BlackRock Tax Saver Fund 8. Reliance Tax Saver (ELSS) ...
Read more

Buy Health Insurance Plan even if you are covered with my Employer

Buy Health Insurance Plan Online Yes, getting a private insurance cover now, which extends beyond your retirement age, is recommended There are a few reasons why buying a health insurance plan may make sense even though you get medical insurance from your employer. Here are the points you need to think about. Firstly, your employer's insurance coverage will only protect you as long as you are employed with the company. The policy will terminate when you quit the job or when you retire. Post retirement is perhaps the phase when one needs it the most but you won't have it then. Moreover, buying a new insurance policy after the age of 50 means that there will be no coverage for pre-existing diseases.   Lastly, health insurance policy you get from your employer may or may not cover your dependants. ------------------------------ ----------------- Invest Rs 1,50,000 and Save Tax under Section 80C. Get Great Returns by Investing in Best Performing ELSS Mutual Funds Top 10 Tax Saver M...
Read more

Mutual Fund Review: Taurus Tax Shield

    Taurus Tax Shield has seen a turnaround in performance since 2007, but still remains a volatile offering… The fund has seen a turnaround in its performance since 2007 and has delivered impressively during market rallies since then. The portfolio is also more diversified. It contained its downfall to an average level in 2008 but is still one of the most volatile offerings in this category. Bold investors can look at this fund.   Strategy The fund manager invests across the market capitalisation and sectors. The selection of stocks is made on the basis of long-term business prospects and value creation. Fund Insight Launched in March 1996, the fund was a laggard with just two annual outperformances. Concentrated stock bets and high exposure to mid and small caps led to it being hit harder during market downturns. The number of stocks in the portfolio never exceeded 20 and it was not rare to see the top 5 holdings account for around 60 per cent of the portfolio. After b...
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