Loan or provident fund? The better option to buy a home

Vivek, 43, recently bought a house worth Rs 70 lakh, for which he made a downpayment of Rs 18 lakh. He is now faced with a dilemma: Should he use his investments, EPF (Employees' Provident Fund) accumulation or take a home loan to fund the remaining Rs 52 lakh? Just so you know, Vivek takes home about Rs 1.4 lakh every month. His household expenses usually range between Rs 60,000-70,000. Further, Vivek pays a rent of Rs 20,000 for the house where he currently lives, leaving a surplus of around Rs 50,000 that he invests through SIPs (systematic investment plans). Let's now look at all possible ways that can help Vivek finance his dream home. Should he redeem his investments? As seen in the table, Vivek has accumulated a corpus of Rs 54 lakh. Of this, Rs 30 lakh lies in his EPF account, while the remaining investments are spread across equity and fixed-income securities. Ideally, a long-term portfolio should have a significant chunk invested in equities. But in Vivek's case, equities constitute around 33 per cent of his portfolio, which is inadequate. Thus, Vivek should avoid touching his investments in equities.

This article was originally published on April 15, 2024.