I have Rs 14 lakh remaining of a home loan of Rs 46 lakh. If I continue paying the EMI of Rs 50,000 per month, the loan will be cleared by March 2023. Both my wife and I are working and have around Rs 20 lakh each in EPF. Can we withdraw Rs 7 lakh each and close the loan? I am in the 30% tax slab and my wife is in the 20% slab.
Prableen Bajpai, Founder FinFix® Research & Analytics replies: EPFO allows a subscriber to withdraw a maximum of 90% of the accumulated corpus for repaying an outstanding home loan. The amount is not taxed after five years of continuous service. As EPF is usually the dominant product for building one’s retirement corpus, you must re-evaluate the option to withdraw as it will impact the compounding of your returns. With around 2.5 years of your loan tenure left, you have already paid the majority of the ‘interest’ component, and further EMIs will have a higher share of the principal. You need to roughly calculate the EPF and home loan interest cost and benefit (and taxation) based on the occupancy of the house (rented or self-occupied) and loan holding (single or joint). The decision is further dependent on your overall financial position; what percentage of your salary goes as EMI? Are any other investments other than EPF available to make the repayment? If you repay, where and how do you plan to invest the money freed from EMI? Based on the answers, take the final call by factoring in your comfort level.
I am 34 and have a four year old son. I have been investing Rs 7,500 each per month in L&T Midcap, Motilal Oswal 35, Mirae Asset Emerging Bluechip and SBI Small Cap Fund and Rs 5,000 each in Tata Equity PE, Aditya Birla BSL Frontline Equity, Canara Robeco Emerging Equities and Reliance Small Cap Fund for the past year. Should I continue with these funds or stop any? I have a time horizon of around 10-15 years. I also invest Rs 1.50 lakh each in the PPF accounts of my son and my own. I recently opened a NPS tier 1 account and am planning to invest Rs 1.50 lakh annually in it. I also invest Rs 10,000 every month in an RD account. I want to build a good corpus for my retirement and my son’s education and marriage. Am I on the right track? I also want to invest another Rs 50,000 per month for 15 years. Please suggest investment options.
Naveen Kukreja, CEO and Co-Founder, Paisabazaar.com replies: You can continue with your existing funds, except for Aditya Birla Sun Life Frontline Equity, which has been consistently underperforming its benchmark index and peers. Replace it with any of these better performing large cap funds—Axis Bluechip, Mirae Asset Large Cap or IDFC Large Cap Fund. You can consider investing your monthly surplus of Rs 50,000 in your modified mutual fund portfolio in the same proportion that you have been investing till date. If the primary purpose of investing in PPF is to save tax, then I suggest you invest in ELSS instead. These are diversified equity funds with a lock-in period of just 3 years. You can consider any of these ELSS funds — Axis Long Term Equity, Mirae Asset Tax Saver, Aditya Birla Sun Life Tax Relief 96 or Kotak Tax Saver Fund. You can also consider investing in equity funds for creating a retirement corpus as mutual funds, as of now, offer greater flexibility, transparency and product diversity than NPS. You can route the annual investment amount meant for NPS to your modified fund portfolio in the same proportion that you have been doing.
