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Should I withdraw my SIP corpus and pay off the loans

I have a home loan wherein the outstanding principal is Rs.23 lakhs. I understand that the current rate of interest is 11.45%. the EMI I am paying is Rs.24K. The loan I payable it the year 2035. I also have around Rs.7 lakhs in SIP which has been there for more than 1 year now. I want to know if I should withdraw the SIP and repay the loan. I also have a hand loan of Rs.7 lakhs where I am paying 12% interest. Please help me to understand if I have to withdraw the SIP to repay the home loan or the hand loan. As it is more than a year of saving under SIP, I am also in a dilemma whether I have to withdraw the money. Kindly help me to decide on this matter?

Jun 8, 2016 by Deepika R Ghodkey, Bangalore  |   Mutual Fund

You have two loans – Home loan and hand loan (though, we could not understand what a hand loan is, therefore, presuming it to be a personal loan).

At the first hand, we could not understand how you are investing through SIPs and servicing the loans as well. Because, in one hand you are servicing the high cost loan and facing difficulty and on the other trying to create a corpus by investing in SIPs. We are sure you are facing problem in funding the SIPs as well as the two loan EMIs, right?

If that is the case, then our suggestion would be to pay off the personal loan first by redeeming the SIP corpus. Since you personal loan is of Rs. 7 Lacs and the SIP corpus is also Rs. 7 Lacs, you can get rid of the personal loan fully. Till such time your financial position improves you have no option but to continue paying the Home loan EMI.

We are suggesting to pay off the personal loan first, because 1) Interest rate of personal loan is higher than that of Home Loan 2) You get tax rebate on Home Loans under Section 80C of the Income Tax Act for the payment of principal amount upto Rs. 150,000 per annum. Also, under Section 24 of the Income Tax Act, you can avail a tax benefit of upto Rs. 200,000 on the interest amount, if it is a self occupied property. You may like to read the answer of a similar query Should I preclose Credit Card and Personal Loan and avail Home Loan

SIPs – coming back to your SIPs, our suggestion would be to go for SIPs in liquid funds (we are presuming that you are currently doing SIP in equity funds), if you have investible surplus amount. Why liquid funds 1) Because, you can accumulate corpus and pay off the home loan periodically. For example, you are doing a monthly SIP of Rs. 10,000 in a liquid fund. If you want, after 10 months, you can redeem Rs. 1 lac and payoff part of the home loan. Your principal amount will not be negative in liquid fund SIP and you will also get returns ranging from 7-8% from a good liquid fund. 2) Doing SIPs in equity funds, right at the moment is not suggested as these are for the long term. Right now, your idea should be to reduce or pay off the loans as soon as possible.

You may like to find the SIP returns of Liquid funds.

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