Should I invest bank OD amount into mutual funds

I have OverDraft (OD) based home loan (9.5%), I have excess money (40 Lakhs) in that account. As per my calculation, if I keep 40 Lakhs in OD for 10 years I will be saving 22.1 Lakhs, if I invest 40 Lakhs in mutual funds then I can earn compounding interest rate. so now I have questions: 1. Is my above understanding is correct? If yes then? 2. Since the market is at its peak so rather than doing lump sum investment in MF, I think to start putting 40 Lakhs in a good liquid fund and start STP / SIP from that to put into Equity Oriented Balanced Fund. I will plan STP/SIP in such a way that I flush up my liquid fund within 1.5 years. Is this a correct approach? 3. Even if I consider 11% CAGR return from above exercise with 10 years horizon then I would be making 73.57 Lakhs interest which is more than what I would be saving by paying OD account? 4. I have the adequate term plan to cover up the risk in case of death? 5. My age is 41, I have twins kid (11 years old), 11 Lakhs in PPF, already investing in MF (Monthly SIP of Rs 60,000), LIC policies (I am planning to close down as I am not getting good returns), I will invest LIC money into good balance fund. Not yet planned anything for retirement. This is to give you an idea about my risk apatite. I hope my question is clear enough. I would appreciate for an expert comment on this strategy?

May 5, 2017 by Jay, India  |   Financial Planning

Theoretically, your plan sounds good as you have compared the OD interest rates which may be lower compared to the future gain that you could make by investing in equity mutual funds. But coming to the practical aspect of it, please note that any OD amount or loan amount cannot be invested in market securities or shares or into any speculative investments. I am sure, if you read the fine print of the OD document you will notice this. To the best of our knowledge, the banking laws does not allow this. Therefore, if you invest the OD amount into mutual funds that might not be treated as appropriate!

As you have taken sufficient life cover through term plans, the idea of surrendering the traditional insurance plan is right. You can rather deploy this money in enhancing your monthly SIP investment amount

At age 41, you have a good PPF corpus and it is good from the diversification point of view.

If you continue your monthly SIP of Rs 60,000, you can get a decent corpus over long term. However, we feel that you should link your SIP investments with some of your long term financial goals. You have not yet started your retirement planning and your kids are already 11 years old, therefore, this is high time you should plan for goals like higher education of your children and their marriage etc. SIP can be a big enabler in chasing these goals but first you should know what is the retirement and other goal corpuses and then only you know if your current savings are enough to meet these financial goals?

Do share your thoughts. Thanks for writing to Advisorkhoj.

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