How haste is the right decision in home loan repayment?
If you have taken a home loan, then every month a hefty amount has to be paid as EMI. If you want to deposit less as interest, then financial experts advise to deposit some extra every year or increase the EMI every year. In such a situation, if you have surplus money, then how should this money be used, it is a big question.
Whether this money should be used for loan repayment or should be invested elsewhere, it depends on many factors. Financial experts suggest that if you are able to earn more returns from the surplus money than the interest rate of the home loan, then use this fund elsewhere. However, during this time also keep in mind the tax relief. If you want to invest this money in the stock market, then avoid lump sum investment. The STP route can be adopted for investing in the stock market.
Lump sum money can be deposited in STP
In STP i.e. Systematic Transfer Plan, you deposit a lump sum amount in a liquid fund. From here your money is also invested in the stock market. Home loan prepayment is a good option if you want to use that fund in a lump sum. Apart from this, keep in mind whether you want to use this surplus money in the near future. If this fund is necessary for your near future then a better option would be to invest it in equities.
Interest rate on home loan is very low
As we know, the interest rate on home loan is lower as compared to consumer loan. In such a situation, if you need money suddenly in the near future, then taking a personal loan will prove to be an expensive deal. If you have invested in equity, it can be redeemed at any time.
Keep in mind the requirements of tax benefit, net return and near future
Various tax benefits are also available with the home loan. Deduction under section 80C is available on principal amount repayment up to 1.5 lakhs. At the same time, there is a benefit of deduction of up to 2 lakhs in a financial year under section 24 on interest repayment. Overall, take any decision regarding the surplus fund keeping in mind the returns, tax benefits and near future requirements.
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