What should be my MF mix to prepay the home loan?

Tushari

It is a good idea to invest a portion of your funds in MFs as well as work towards prepaying your loans. Use your annual bonus/variable components in compensation (if any) to prepay the loan which will help reduce your loan tenure and save on interest costs. Also, increase the EMI amount whenever you get annual salary increments.

Considering that you already have a home loan and possibly contributing to an Employees’ Provident Fund (EPF) account as well, your MF portfolio should ideally be tilted towards equity if your risk tolerance and As the investment time horizon allows, the cost of the loan may be higher than the return on your loan MF investment, and hence prepayment of the loan may be a better option than loan MF. Considering that you are still young, equity MF investing can potentially give better results on debt over a very long time frame.

For incremental tax savings, consider investing in the National Pension System (NPS), which gives additional 50,000 tax benefit to the taxpayer after the use of 1.5 lakh limit under section 80C. Additionally, if your family does not have health insurance, under section 80D, the person paying the mediclaim for self, spouse and children can claim the maximum deduction 25,000 per year. If your parents are above 60 years of age, you can also consider taking a separate policy for them as the premium paying person can get an additional deductible up to a maximum of Rs. 50,000

Vishal Dhawan is a certified financial planner and founder of SEBI-registered investment advisory firm Plan Ahead Wealth Advisors.