I have OverDraft (OD) based home loan (9.5%), I have excess money (40L) in that account. As per my calculation, if I keep 40L in OD for 10 years I will be saving 22.1Lakh, if I invest 40L in mutual funds then I can earn compounding interest rate. so now I have questions:
- Is my above understanding is correct? If yes then
- Since the market is at its peak so rather than doing lump sum investment in MF, I think to start putting 40L in a good liquid fund and start STP / SIP from that to put into Equity Oriented Balanced Fund. I will plan STP/SIP in such a way that I flush up my liquid fund within 1.5 years. Is this a correct approach?
- Even if I consider 11% CAGR return from above exercise with 10 years horizon then I would be making 73.57 Lakh interest which is more than what I would be saving by paying OD account.
- I have the adequate term plan to cover up the risk in case of death.
- My age is 41, I have twins kid (11 years old), 11Lakh in PPF, already investing in MF (Monthly SIP of 60 Thousand), LIC policies (I am planning to close down as I am not getting good returns), I will invest LIC money into good balance fund. Not yet planned anything for retirement. This is to give you an idea about my risk apatite.
I hope my question is clear enough.
I would appreciate for an expert comment on this strategy.
- Identify the goals, try to invest at first before those goals which are very much sure to come in your life like Retirement or Kids Education. If you left out with anything beyond these, then prepay to home loan.
- It is the game played by advisers or mutual fund companies to earn their commission. Never be in this trap. If goal is long term and you did proper asset allocation between equity and debt, then TODAY is the right day to invest.
- It may be, but here my point is to understand your goals. Link your investment to goals rather than investing blindly.
- How much?
- Closing home loan is not the solution and at the same time running home loan and also the investment parallelly. But do the mindful action by investing and keeping loan also.
Thank you for the quick response.
- Goals are somewhat identified and posted in https://www.basunivesh.com/forum/question/kids-education-marriage-retirement-planning/
- STP, I am afraid of peak market, so thought of taking advantage of rupee average
- 10x of my annual gross salary + Liability (home loan)