I am 30 years old and I have a home loan of ₹28 lakh. I pay an EMI of ₹29,000. The home loan has started just now and its tenure is 30 years, which means it will be completed when I become 60 years. I am an IT employee and my dependents are my wife (home maker), father and two daughters (very small kids, not started school). I also want to know the best tax saving options. I searched online and found that ELSS offer 14 per cent or PPF offer 8.5 per cent returns. But surprisingly I didn't come across anything which talks about home loan principal payment first or ELSS savings. Can someone please suggest me if I can start savings in ELSS or PPF or first concentrate on paying the principal of my home loan. My net salary is now ₹70,000 and I expect 5 per cent average annual growth in my salary. I am really confused if I need to start investing or start paying principal amounts first and think about ELSS or PPF only after I repay my loan completely.
- Suresh Kumar
Do you struggle to pay your loan EMI every month. If the answer is yes, you should consider prepaying a part of your loan to bring the EMI to manageable levels. If the answer is no, you need not bother with the prepayment. Go on paying your EMI and start/continue your investments (tax saving or otherwise) along with it. Housing loan is considered a "good loan" as it helps you to create an asset and it also offers you tax breaks. Even the interest rate on housing loan is not exorbitant like other unsecured loans. However, high-cost debt likes credit card outstanding, personal loans, etc are considered "bad loans." It is better to repay them before starting a saving or investment plan. This is because it just doesn't make sense to pay an interest of 20-30 per cent while saving or investing to earn around 7-15 per cent.
It is not a wise strategy to wait till you repay your loan completely to start investing for your various financial goals. Starting early with a very small amount will help you to achieve your financial goals easily because of the power of compounding interest.
If you are considering tax saving investment options, you can opt for Equity Linked Savings Schemes (ELSSs). These schemes have the least lock-in period of three years among other investment options available under Section 80C of the Income Tax Act. However, you should have a minimum investment horizon of five years to invest in ELSSs or any other equity schemes. Since they invest in equities, they have the potential to offer superior returns over a long period of time.