Pay off home loan or invest?

Certified Financial Planner Gaurav Mashruwala is of the opinion that it is best to stop investing and pay off debt as soon as possible.

Markets And Macros at 11:00 am

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Gaurav Mashruwala, Certified Financial Planner

Whether it's a home loan or a car loan, it is only natural that you want to pay it off as soon as possible. On the other hand, it is logical to invest some part of your fund for your retirement or any important milestone in life. Certified Financial Planner Gaurav Mashruwala is of the opinion that it is best to stop investing and pay off debt as soon as possible.

Below is the edited transcript of his interview on CNBC-TV18. Also watch the accompanying video.

Q: An investor can invest around Rs 40,000 per month (not a fixed amount). He has got stock holdings, investments in mutual funds in SIP. He wants to invest for children’s education. He is a long term investor.

A: If your financial goal is more than 7-9 years, which is slightly long term, equity is the best asset class. You can either get into direct equity provided you have skills and time. So you should be looking at the quarter reports that come out and going through the balance sheet etc. If that’s not what you are doing then I would suggest take a mutual fund route and keep investing on a regular basis. Since it’s a very long term goal, you can probably split your amount that you put aside every month. You can take an index fund, a large cap fund and also put slightly in gold because that will balance out your portfolio. Since you don’t have a definite amount, I am not able to comment as to how much you should set aside but regularly even if you are able to save out of your total income, 20-30% or your income, it should be fine.

Q: An investor is well invested in the stock market; he has Rs 20000 as investment in mutual fund SIP and pension plans as well. He has a housing loan where he pays Rs 35000 per month as EMI. So is it okay for him to go to mutual fund SIPs to beat the interest he is paying in housing loan or should he stop the investment in SIPs and contribute Rs 20000 extra on EMI? The house is his second property. How should he allocate his money?

A: The EMI that you are going to be paying is certain, the interest rate, the EMI amount remains constant. The returns from equity market - be it direct equity, mutual funds or ULIP are volatile. So don’t get into a situation you have a house under debt where you have an uncertain returns against a a fixed debt. So stop investing, pay off debt and ensure that your house is debt free, no mortgage at all as soon as possible.

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