Borrowing to invest: a no-no, unless…
“If you have a loan at the rate of 9% per annum and your portfolio is not growing at that rate, you must have enough money to pay the interest (it's called negative ammortisation and can hurt real bad in a falling market), “ he says.

However, according to PV, there are instances where great wealth has been created by ‘disciplined’ borrowing. ”For example, if my income is Rs 1 Crore and my expenses are say Rs 20 lakhs a year, that leaves me with Rs 80 lakhs to invest. Now, if the EMI (for my investment) is say Rs 40 lakhs a year, it is disciplined investment. Immaterial of what happens to my investments, I have the ability to wait, “ he says.

His take on Dr Shah’s borrowing strategy: the personal loan is a banker’s delight and a client rip-off! It costs about 22% per annum. The LIC loan should be available at 9% per annum. There are no cons as such to this strategy, but if he were to pass away, the nominee will get a pathetic amount and the very purpose of taking the LIC policy could be lost.”

The solution: Dr Shah could take a term policy worth the borrowed amount.

Two policies better than one?
Say someone takes a housing loan of Rs 20 lakh and an endowment insurance policy of the same amount. If he passed away, the insurance company would pay his nominee (say his wife) Rs 20 lakh plus bonuses, if any.

However, if he borrowed Rs 9 lakh from the policy and invested it elsewhere (or worse spent it), and the amount was locked in, in the eventuality of death his wife will receive only Rs 11 lakh (20-9), and a small amount as bonus. So, how would his wife repay the home loan?  

Ideally, if he takes a loan of Rs 9 lakh on the policy, he could also take a term insurance of Rs 9 lakh, so that in case of any eventuality, his wife will receive Rs 20 lakh to repay the loan. Besides, the other investment would still be in place. 

PV’s savvy advice
- Borrow to invest in the stock market if you know the difference between skill and luck. If not, don’t!