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

What are the factors affect the changes in Interest Rate of Fixed Deposits?

  What are the factors affect the changes in rate of Fixed Deposits? Fixed Deposits are now considered to be a very old fashioned method of saving, but still attract many investors since they have guaranteed returns at the end of the tenure of the investment at a decent interest rate. There are various factors that affect the rates of interest for a Fixed Deposit. Policies of the Reserve Bank of India   - The several norms and restrictions posed by the Reserve Bank of India , in order to gain optimum control over credit and inflow and outflow of fund throughout the country. The repo rate changes, cash reserve ration tends to change and these changes affect the banking products like Fixed Deposits, loans etc. Recession   - When unemployment in a country crosses the benchmark set Recession hits, and slowly the country faces an economic slow movement, affecting the purchasing power of the people in the country, forcing the Reserve Bank of India to release more funds in the financial marke...
Read more

Understanding Your Cibil Credit Information Report

   WE ARE all familiar with the anxiety and uncertainty that we feel when applying for a loan. After all, it's the lender who decides whether we can own our dream home, our first car, or whether our children can pursue higher education. In a nutshell, a better life depends on the lender's decisions.    While other factors do play a part in the lender's decision, the Cibil Credit Information Report ( CIR ) plays a crucial role in a lender's decision to approve a loan application.    Previously, lenders would treat all loan seekers equally. Each applicant, if approved by the lender's internal credit policy, would be charged at the same interest rate for a particular loan size and purpose. The lenders would charge a higher interest rate to all the borrowers, in order to compensate for the possible default of a small portion of the loan disbursed. In other words, it's like a professor (the lender) punishing an entire class (borrowers) for the mischief played b...
Read more

Capital Protection Oriented Funds

Download Tax Saving Mutual Fund Application Forms Invest In Tax Saving Mutual Funds Online Buy Gold Mutual Funds Leave a missed Call on 94 8300 8300   Capital Protection Oriented Funds   Erosion of capital is one of the key concerns for investors wanting to invest in equity mutual funds. To address this concern, asset management companies have launched Capital Protection Oriented Funds (CPOFs). What are CPOFs? CPOFs are generally three to five-year, closed-ended funds where 70-80% of the portfolio is invested in fixed income securities, which mature on or before the scheme's tenure. The investment in fixed income securities grows to 100% at the end of the tenure, providing the investor with capital protection. The remaining portion (20-30%) is used to take exposure to equity, which provides the upside. Exposure to equities is either by directly buying equity stocks (plain vanilla CPOFs) or by b...
Read more

About CRISIL IPO Grading

CRISIL IPO (Initial Public Offering) Grading is an opinion on the fundamentals of the graded issue that reflects CRISIL's independence and expertise. This opinion is expressed as a relative assessment in relation to other listed equity securities in India. The assessment is based on a grading exercise carried out by industry specialists from CRISIL Research. A CRISIL IPO Grade 5/5 indicates strong fundamentals and a CRISIL IPO Grade 1/5 indicates poor fundamentals. CRISIL IPO Grading reflects its assessment of the graded company's equity fundamentals as distinct from an assessment of debt fundamentals. A CRISIL IPO Grade should not be construed to mean a comment on the price of the graded security nor is it a recommendation to invest or not to invest in the graded security. However, this grade is not an opinion on whether the issue price is appropriate in relation to the issue fundamentals. The grade is not a recommendation to buy / sell or hold the graded instrument, or a comm...
Read more

Mutual Fund Review: ING Dividend Yield

  ING Dividend Yield's small assets enable the fund manager to churn in impressive returns… Strategy The aim of the fund is to invest in stocks which offer a high dividend yield. This fund deploys a value based strategy which aims to gain from investing in fundamentally strong and free cash flow generating businesses. The scheme focuses not only on growth but also on the cash generated by the business, which mostly leads to stable returns even in volatile markets. This fund has a low volatility because of its investment in high yielding stocks. The scheme tries to include stocks that yield dividend above the dividend yield of the Nifty and stocks with liquidity, which throws up a universe of 150 stocks.   Our View Launched in October 2005, this fund invests at least 65 per cent of its assets in high dividend yield stocks. The fund has consistently maintained a mix of stocks across varying market capitalisation, with a higher tilt to mid caps compared to small caps. Howev...
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