nirav recently got ₹5 lakh semi-annual bonus, and now he is in two minds whether to prepay his home loan or invest the money.
In such cases, it is often suggested that one uses the money to invest instead of prepaying the home loan. This is mostly due, first of all, to taxation benefits. Secondly, since home loan rates are low, if you compare them with long-term equity-linked investments, most people agree that investing the money would be a better strategy.
Yes, it is definitely something to consider, said Deepak Krishnan, financial planner at Mangrove Wealth. “Home loans are within a window of 7 to 8% and you can get minimum 11% return for equity investment.”
This is an excellent strategy to follow in a bullish market, Krishnan said, but it can be disastrous in a bearish market. In that case, the investor would end up with a depressed portfolio.
What should Nirav do?
Mehta said that under no circumstances, one should have financial liability or take a loan, if it gets an opportunity to make early prepayment.
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