EMI for my home & car loans are 7000 &7500 respectively. Loans outstanding are5.8 & 3.2 lakhs respectively.?

Both the loans have floating interest rates. I have planned to pre pay the car loan first , within about 10months. I will surrender some of my LIC money back &endowment policies for this purpose. Thereafter I will have a sum of 90000/year (save on EMI) to invest , plus save on the interest payable for car loan.
Am I on the right track?
Where & how to invest the sum of 90000?

EMI for my home & car loans are 7000 &7500 respectively. Loans outstanding are5.8 & 3.2 lakhs respectively.?
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3 Replies to “EMI for my home & car loans are 7000 &7500 respectively. Loans outstanding are5.8 & 3.2 lakhs respectively.?”

  1. You can close your car loan before maturity, but do not surrender your LIC policies.
    Reg. investment, you can invest in shares, mutual funds, fixed deposit etc.

  2. I dont understand what you achieve by foreclosing the car loan. What are the foreclosure charges ? Can you get loan against the LIC policies at interest rates lesser than the car loan. If yes take that loan and pay down as much of the car loan as possible if you have bullet payment options. Dont foreclose your house loan since you will lose the interest tax break. Over all I dont see any great benefit in the loan swaps your envisage.

  3. I think this question needs tackling on 2 fronts

    1. Insurance
    To my mind one surely needs Insurance to ensure that in his/her absence, the family can continue to enjoy more or less the same level of lifestyle, atleast for the next 10-15 years. So this would include monthly expense requirements incl. children education+loan liabilities, at the least. Say this is Rs. A per month. You would require an insurance cover for Ax12x10 = B rupees. If you are a working couple, I would say the Insurance requirement gets divided in the same ratio as you share the expenses. So, if you share that equally, practically you would require Insurance for B/2.

    Make sure that if you surrender your endowment & moneyback policies ( I agree they are very poor investment vehicles), you do take a pure Term Plan cover for B rupees. The term plan would typically come at a fraction of the policy moneyback/endowment costs. At 41 yrs, a LIC Anmol Jeevan Term Assurance Plan for 10 lakh cover for 10 yrs, would cost you about Rs. 5100. For 20 yrs, will cost you roughly Rs. 7500
    You can check these here http://www.licindia.com/premium_calculator.htm

    2. Investment
    Yes, its better to put the freed up 90K to work in investment mode, rather than pay up upto 10x the premium required for an abysmal 5-6% compounded returns, at most.

    You can clearly see even the reliable and completely safe PPF will compound at 8%. You could actually open 2 PPF accounts (if you don’t have already) one in yours & wife’s and divide the 90K equally in the 2 accounts, each every year. That itself would generate approx Rs.45 lakhs for you in 20 Yrs, with Zero risk. (yes you can open another PPF a/c after the first one matures in 15 yrs, with the proceeds accrued)

    But you can do better, put 45K in PPF (nets you roughly 22 lakhs in 20 yrs), and the other 45K you put in 2-3, 5-star rated reputed funds like SBI Contra, HDFC Prudence, Reliance Growth and your investments are on auto-pilot, well almost. Even the best funds you need to monitor, and take corrective actions, sometimes, but that needs only 30 mins-max 1 hour perhaps, every quarter. All you need to do is check if your funds remain top-bracket at, by now you know, where 🙂 http://www.valueresearchonline.com/toprated.asp

    yep, and the 45k in MFs every year can easily compound at 15-20% (not being greedy here, are we) to net you an additional Rs. 75 lakhs (15%) to- hold it- over 1.2 Crores!! (20%). If your MF investments can’t net you 15% compounded every year, its not worth taking the extra risk over secured instruments like PPF, isn’t it.

    Question is, all the planning’s fine. Will you have the discipline to lock it away, every year, without fail!??

    Good Luck. You can do it!

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