5 Retirement Planning Myths

5 Retirement Planning Myths Debunked

How would you feel if you have to live without a salary for 20 years or more ? To be precise, that's what retirement is all about!!!

Majority of Indian Middle class fall in below category 
a) When young and newly married -Attitude is Who cares for retirement
b) Married with children - Already paying an EMI for Home Loan & Car Loan (you should read Mutual Funds Vs Real Estate , if you married with children and planning to buy a house)
c) When Children Graduate - Home loan is completed and Education Loan started (read Child Education Planning)
d) When Children Marry - Loan for Marriage 
Finally when retirement comes, mostly dependent on children

Middle class life entire life goes in debt but will never take the risk of investing in stocks or mutual funds.
I am sorry if i am hurting your feelings but above is truth based on what i have interacted with so many senior citizens whom i met every morning in joggers park near my house.

Must Read : How Much Insurance Do You Need?

Usually, In India, people expect their children to look after them or presume that their EPF corpus will suffice for their retirement expenses (if not redeemed for any of the loan above). But if you calculate the approximate money needed to lead a stress free life, retired life you will realize why planning for your retirement is as important as planning for your other life goals.

Similarly, While you have been planning for your retirement, you may have also believed some of the retirement planning myths that are branded about.
Hence, Whether you are about to start planning your retirement or have already started it, about to retire or have already retired, this article is for you.

Myth #1 : Retirement is a lifelong process

Retirement is usually treated as long holiday.But that is exactly what it is not.
Is it possible to be on a holiday for 20 years of your life? Certain retirees often experiences alienation during their retirement period as their role as a worker is over.They do not feel productive and feel disengaged from their lives. some look for support in their communities or try to find some work to feel productive.Hence,  
retirement is not a long holiday for rest of your life 

Must Read : Why you should not buy ULIP

Myth # 2 : You save and invest when you earn and spend when you retire

While it is true that you are encouraged to keep savings and investing for your retirement, that is simply so that you can be relatively free of financial burden during retirement years. 
But does this imply that you only keep spending during retirement? Hardly. Even in your retired life, you have a long future to consider,bills to pay and expenses to meet. You may have a corpus hefty enough to meet your needs for next 20 years or so but can you say for sure you will be able to meet all unplanned expenses as well? 

If saving money is your habit you have developed all your life, there is no reason to stop it the moment you retire. If you have a substantial retirement corpus, you will not be using the entire corpus at one go. Hence, keep a part of it investing ensuring that your funds are not lying idle. If you also generate supplementary income by doing some part time or consulting work or have rented out a property, income coming fro these streams are added to your corpus. Hence, you need to work out a plan for investing this regular income too. 

In Short, just because you have stopped working does not mean your money should also stop.

Myth # 3 : I don't plan to retire, so no need to save

Every coin has two sides, Because of technology you are reading this article and the same technology had made many jobs obsolete.
By the time you retire, the work you do may become obsolete. Hence, finding work suitable to your skill sets could be challenging, especially if companies are looking to hire young guns. Instead of relying on your continued work, rely on your present income to generate future income. 

The future might be uncertain, but as the saying goes "precaution is better then cure", present is also uncertain. Your salary comes in every month might be getting a yearly bonus and salary increment as well. Start your savings and investments for retirement. Do not give yourself the illusion that you can be frivolous today and keep working because you anyway do not plan to retire.

Must Read : What if your Insurance company goes bankrupt?

Myth # 4 : You should exit equities at retirement.
One of the biggest myth surrounding retirement planning is that your corpus should not be invested in equities or equity oriented mutual funds. These misconception have led people believe equities are unsafe and volatile.
Equities as an asset class have given the highest return over the long term. The long term period reduces volatility and also increases returns. Hence if you are planning to start investing for your retirement, equities should be your priority as you benefit from the time value of money and the power of compounding.

Myth # 5 : You should repay loans before you start savings for retirement.
A lot of us tend to believe that since goal of retirement is far away, we can start planning for it much later. This is a costly mistake. If you start early, you can start small and reduce the financial burden later on. 
Many investors prioritize repayment of loans before starting their plan for retirement. They tend to treat retirement planning as secondary goal compared to repayment of debts.

At this stage, you have to remember that a person who cannot help himself is no good for others. Hence, break the myth of "Shall plan retirement later" or in Typical hindi "Dekha Jayega" and start doing so now, along with your various debt repayments.

Must Read : Why term insurance is required up till 60 years?

Conclusion 
Retirement is that one goal for which you have a plan. For every other goal, you have the option of taking a loan and repaying with your future income. Retirement does not allow you that luxury. You have to make the best with what you have saved and invested. 
Hence, do not fall for these myths and set up hurdles in your retirement planning process.

PPS: If you think this page and blog will be useful to any of your friends please spread the word. A good way to start is to share this page on your social circle using floating social share bar on the left. 🙂

About the author
Vipul is a software sales professional for Asset Management Companies, Pension Fund and Stock Brokers from last 16 years. 

Vipul believes that the amount of financial information flowing our way is probably 10 times more than what it used to be 15 to 20 years back due to the advent of newer forms of communication.
All this information is creating an information overload in the minds of individuals resulting in analysis paralysis and he helps them select the right decision while creating a Goal based financial plan.
In case if you need a Financial Plan please connect to him on vipuls1979@gmail.com

4 Things Not To Do Until Your Home Loan is Sanctioned

If you are planning to buy a home and think that your home loan application can easily get accepted by the bank, think again. While a good income is certainly a criterion for lending, a bank takes into consideration a whole lot of other things too before deciding to lend. However, some silliness on your part before making the first move can derail the most important goal of your life.

Must read : Mutual Funds vs Real Estate

Buying a home is everybody’s dream. And a variety of finance options make us believe that realizing this dream into reality is not that difficult. But it’s not easy either. The first step towards the same is getting the loan sanctioned. And this includes certain behaviors’ of yours before you apply for the loan. Take a look at the things you should not do till the mortgage you want gets closed down.
 
Do not change job
 
While the offer of a new job is enticing, you should refrain from job hopping when you have to apply for mortgage few months down the line. Frequent change of jobs is viewed suspiciously by lenders as it implies job instability.
Your mortgage request can be rejected on account of this as lender places a high value on the latter. You need to be employed at one place for certain time duration in order
to be eligible for the home loan. This period can range anywhere from one to three years.

Must read : Retirement Planning : Beating Inflation blues 

You should not take your address lightly
You should not change your residence between the time of applying for the loan and till the same is sanctioned. This is because the address that you mentioned in the loan application form would be investigated by the lender during Contact Point Verification (CPV) check. If your CPV check is negative, that is if you are not available at the residence mentioned by you, the loan application can be rejected. 


Do not close an old loan account 
While it is a known fact that a bad credit behavior hurts your CIBIL score, you must also know that some good credit behaviors can also have a negative impact on it. And closing one of your old credit card accounts, especially if it has a clean repayment track record, is one of them. This is because the length of the credit history is an important factor in determining your CIBIL score. The longer it is, the better it is. So you should avoid closing any credit account before applying for a home mortgage.

Must read : Mutual Funds vs ULIP

Avoid taking another line of credit 
If you have to apply for a home loan in few months time, drop the idea of adding another line of credit. In calculation of your home loan eligibility, your existing lines of credits are also taken into account.
Suppose you want a loan of Rs 25 lakh on which home loan EMI works out to be Rs 25,000. But if you had taken a personal loan sometime back towards which you are paying Rs 10,000 as EMI, then as per fixed obligation to income ratio the reworked EMI for the home loan would be only Rs 15,000.
Accordingly, your home loan eligibility would be reset.
If you pay heed to the above mentioned points, closing your home loan mortgage will be a smooth sailing process.

PPS: If you think this page and blog will be useful to any of your friends please spread the word. A good way to start is to share this page on your social circle using floating social share bar on the left. 🙂

About the author
Vipul is a software professional developing software for AMC, Pension Fund and Stock Brokers from last 16 years. 

Vipul believes that the amount of financial information flowing our way is probably 10 times more than what it used to be 15 to 20 years back due to the advent of newer forms of communication.
All this information is creating an information overload in the minds of individuals in taking decision and he helps them select the right decision while creating a Goal based financial plan.
In case if you need a Financial Plan please connect to him on vipuls1979@gmail.com

Mutual Funds & Insurance Related Articles :-
Benefits of SIP
What is SWP in mutual Funds
9 Secrets to choose right mediclaim
How to Plan for your Child Education Planning
How to do Retirement Planning
Best 3 Large Cap Mutual Funds for SIP in 2016  
Best 3 Midcap Mutual Funds for SIP in 2016
Best ELSS Tax Savings Mutual Funds for SIP in 2016
Why you should not buy ULIP
How to Select Mutual Fund for Portfolio
Liquid Funds are better alternative than Savings Bank account
What is FMP in Mutual Funds
Complete Guide on Monthly Income Plans
Complete Guide on Credit Opportunities Fund
How to Save Tax using Equity Linked Savings Scheme
How to Budget Your Money
How Much Insurance Do You Really Need
Why Should you buy Term Insurance Upto 60 Years
5 Must Have Insurance Policies for Women

Demystifying Futures :- Margin and Mark To Market

What is Futures ?

This question comes in the mind of those trader who are either newcomer in stock market or want to come in stock market but do not know what it is actually Nifty Future or Reliance Future or Stock Future. But they have listen this word number of times.

So as we know there is National Stock Exchange, one of the main stock exchange of India. Most of the companies registered in this stock exchange and through this stock exchange we are able to do transaction in these companies stock . We are able to buy and sell the companies stock through our broker registered in stock exchange.

Index of National Stock Exchange is known as Nifty. And the derivative contract of Nifty 50 known as Nifty Future. Nifty is a portfolio of main 50 stocks and according to movement of these stock, we see the up and down movement in Nifty

As of now in India a minimum tradeable contract in future has to be of Rs 5 lakhs that is the reason Nifty Future lot size is 75 which means 75 X 8800 (Approximate) = Rs 660000

Must Read : How is Daily & Historical Volatility calculated for Stocks

Why Futures ?

Imagine a scenario that you are doubly sure that a scrip like Reliance Industries will move up in next few months due to Jio Launch or fundamentals or what not. 
But the idea is you are bullish on Reliance, now Reliance Industries trade at 1070, If you had to buy 500 shares then you will have to pay 535000 to broker for delivery. 
Futures market helps you buy 500 shares in a single go while paying a margin of around 7% which is equal to Rs 37450.
There is no Physical delivery of shares in your demat account but virtually you are holding 500 shares of reliance industries which is the lot size.

How is market to market calculated in futures ?

Assume you purchased 1 lot of Reliance at 1070 on 19/09/2016, closing price of Reliance Sep Futures on 19/09/16 was 1084.15 so your ledger account will be credited with Rs 7075 (closing price - purchase price * lot size) 

On 20/09/2016 your future position would be brought forward with Rs 1084.15 from 19/09/2016, since you did not sold your future on 20/09 and it would be carry forwarded with closing price of 20/09/16 to 21/09/06.
This cycle continues unless you square off the position or last Thursday of the month whichever is earlier 
MTM of 20/09/16 would be 1084.15 - 1078.95, now your ledger would be debited with Rs 2600 ( Today's Closing Price - Yesterday closing price * Lot Size) 

On 21/06/16 you squared off the position at the rate of 1087, now your ledger would be credited with Rs 4025 i.e 1087 (sold rate) - 1078.95 (yesterday closing price) * 500.

All in all you earned a total of Rs 1087 - Rs 1070 = Rs 8500

It can also be a loss if you reliance goes down . Futures trading is risky compared and at certain level it may erode your capital , it is always better to have stop loss while trading in futures. 

Must Read : What is POA in Demat & Online Trading

How is Margin Calculated in Futures ?

When you trade in futures market, Stock Broker collects upfront margin from you which includes Initial Margin (Span Margin) & Exposure Margin.
Everyday stock broker has to inform the exchange about margin collected from each and every client, in case of margin shortfall, penalty is levied to broker which in turns levy to you in case of shortfall.

You can adjust your stocks against your margin lying with the broker beneficiary account or in your POA account but only those scrips which are Liquid and approved by Stock Exchange after haircut i.e Var Margin

According to NSE, Exposure margin is not compulsory to collect in Equity Derivatives Segment but it is compulsory to collect in Equity Currency Segment.

As i mentioned earlier there are two types of margin in futures i.e Initial Margin & Exposure Margin 

Initial Margin is the span margin computed by exchange and it comes around to 7.1% of the overall value of the contract 
In our above example of Reliance Sep Future , If you had to buy or sell a future then you have to deposit an upfront margin of Rs 1070 X 500 = 37985 
Exposure Margin is published by NSE in circular section.

Must read : Types of Orders in Trading Engine

In our example we shall assume exposure margin of 5% for Reliance Sep Future i.e Rs 26750

In addition to Rs 37985 you will have to deposit Rs 26750 to buy or sell 1 lot of future. The whole purpose for margin is to collect enough money from you to absorb the capital loss in case if reliance has to go down by 10% 

Margin also work in the manner of MTM discussed earlier , A new margin is debited daily and previous margin is credit in your account resulting in difference of margin entry in your ledger 

I hope i am able to explain you in layman's term,In case if you have any doubt or want any kind of clarifications do let me know in comment section, i would be happy to assist you.

Equities related article :

Market Order vs Limit Order vs Stop loss Order vs Bracket Order

Risk Management in Broking House for You as Investor

Understand Your Daily Margin Statement

What is Power of Attorney in Online Trading?

Futures & Options related article :

Futures Trading Terminologies

What is Derivatives ?

What are Forward Contracts ?

Advantages & Disadvantages of Futures Trading ?

Guide to Options Trading

Long Call - Bullish Trading Strategies

Long Put

Short Call - Bearish Strategies

Sell Put - Bullish Strategies

Buy Straddle Option

Short Straddle Option

Synthetic Long Call

Synthetic Long Put

Synthetic Long Futures

Synthetic Long Futures

Synthetic Short Call

Bull Call Spread

Bull Put Spread

Why Mutual Fund Houses Stop Fresh Investments

In the last three years, mid- and small-cap mutual fund schemes have given returns of close to 35% to 42% on an average. And they have given average returns of around 15% over the last 10 years, highest in the equity segment. However, in the past few months, valuations of several blue-chip high-quality stocks have hit the roof. In fact, many weaker companies have experienced a sharp correction.

The rally in mid- and small-cap schemes has been so fast and intense that even fund houses are failing to find enough opportunities to invest at this point in time. Recently, DSP BlackRock Micro Cap Fund restricted fresh inflows of over 1 lakh into the scheme. There have been instances where many fund managers have hiked their cash exposure only because of the lack of opportunity in the market.

Another major reason for stopping large flows is that in the last few years the corpus of many mid- and small-cap schemes have risen multiple fold. With assets of around 50,000 crore in such a category, it will be very difficult to deploy any more in it. 

Must Read : Should you pre-pay your home loan ?

Due to paucity of high-quality stocks with enough liquidity in the mid-cap space, fund managers of large mid-cap funds may even be forced to invest a part of their portfolio in large-cap stocks, thus reducing the potential return from it. There are many instances of fund managers not being able to book profits in particular stocks for weeks and months due to lack of liquidity in those stocks.

The Indian mutual fund industry is well aware of the fact that smaller funds are easier to manage. Even some large-cap funds like HDFC Top 200 which has grown in size have failed to live up to expectations. This is why fund houses launch close-ended funds as this exercise circumvents the size problem. 

But such measures from fund houses will not solve investors problems,especially if the small scheme they had invested in a few years back has become very large in the current market run-up. One cannot continue to blindly put money in such schemes as there will be times when performance will be impacted. It is always better to invest in funds that are smaller in size with a positive history of performance.

Must Read : Large Cap Funds are Safer and Stable

In this article I have explained why mutual fund houses stop fresh inflows into funds and its impact on the performance of such funds.

When Do Fund Houses Stop Fresh Flows And How Does Additional Inflow Impact The Performance

Inflows into equity or debt schemes is the dream of any fund house or fund manager. With a surge in assets - fund houses can earn income through management fees through expense ratio, which is anywhere between 1.5% and 3%.

But what happens if a fund house plans to stop inflow into its equity scheme for a temporary period and how does it impact investors and the scheme’s performance?

Few years back Franklin Templeton India Prima Fund was one of the first funds to suspend fresh sale of units in January 2006 - when there was an overall euphoria in the bull market. A few months later, Reliance Growth Fund, a mid-cap fund with assets of over 2,400 crore in April ’06 also restricted inflows into its scheme.

Must Read : Mutual Fund Vs Real Estate - Which is Better for Investing

But restrictions and suspension of fresh units are only limited to big-ticket investors (lump-sum investments of `1 lakh and above). Investors who continue to invest through systematic investment plans (SIPs) can, however, continue to do their investments. With rising equity markets and stock opportunities, the mutual fund industry continued to focus on ‘assets gathering’.

But in 2008-09, financial crises hit the global markets, and there was a blood bath on Dalal Street. IDFC Premier Equity, another mid-cap scheme, stopped further subscriptions although investors could invest through SIPs. Later, the fund house decided to open a small window for fresh investments for a few months. This phenomenon continues even today when fund managers feel that the stock markets are overheated.

A scheme typically chooses to stop fresh inflows when there is a perceived lack of investment ideas. Instead, fund managers might choose to sit on the cash till the market opens up for sound investments.

Must read : Best 3 ELSS Fund to Invest in 2016 for wealth creation

While maintaining a higher cash position could help the fund outperform when the market is sliding, there is a limit to how much cash a fund can keep (fund houses are mandated to write on offer documents). The fund may not always be in a position to wait it out and avoid investing altogether. 

In such cases, restricting inflows in the scheme is the only way out. In the Indian mutual fund industry as well as the international fund business, another reason for stopping incremental inflows is when the scheme corpus grows too unmanageable for the fund manager. 
This typically happens when the broader market is on an upswing or when the fund is doing exceedingly well, attracting a surge of money from return-hungry investors.

Last year, SBI Small & Midcap Fund stopped inflows because the mutual fund scheme had outlined a capacity constraint of 750 crore in its offer document, implying that it would not absorb additional money beyond the set threshold. 

If we look at all the mentioned schemes, we see that these were typically mid- and small-cap schemes because limited investible basket of stocks, coupled with liquidity concerns around these stocks put the fund manager in a difficult position when faced with continuing inflows. However, for retails investors the best thing is to continue with their SIPs and not stop only because the markets are either expensive or cheap.

Must read : Best Equity Mutual Funds to Invest in SIP for long term wealth creation

Is More Exposure In Mid- And Small-cap Funds Hazardous?

At the start of calendar year 2013, very few investors were ready to invest in mid- and small-cap schemes. Valuations of several mid- and small-cap stocks were available at huge discounts and many fund houses had launched closed-ended equity schemes. By November-December 13, there was a sharp surge in midand small-cap rally, which has more or less peaked out by now.

But in the last three-and-a-half years, several investors jumped to buy small- and mid-cap schemes as past returns in these schemes made them irresistible. In the year 2014, several small-cap schemes were giving one-year returns of more than 100% and the typical Indian psyche of investing in a surging market was on full display yet again.

Now, the rally seems to have lost steam with a number of mid- and small-cap stocks crashing by 10% to 20%. A few have even touched an all-time high with unreasonable valuations. Therefore, it is very important at this juncture to analyze the performance of investments in mid- and small-cap focused mutual funds and understand how the future looks like for them, going forward.

Must Read : Best Midcap Fund churning money for investors

The equity markets have risen in the past few months largely due to the passage of the Goods and Service Tax (GST) bill and positive monsoon. But with uncertainty in Europe and China and election in the US, it is likely that the Indian equity markets might remain volatile.

But as we know small- and mid-cap stocks and schemes are more volatile than pure large-cap or broader markets, it is important for investors to not aggressively invest only in mid- and small-cap schemes as it was the case in the last few months. In the last one year, midcap index and small-cap index have given returns of 16% and 8%, respectively.

Mid- and small-cap mutual funds outperform rest of the market when the economic outlook is positive as we saw during the 2003-08 bull market. At such a time if the demand for risky assets such as equities is not mitigated, smal-cap stocks see sharp rallies (as was visible in selective stocks) as investors try to make quick bucks. Such euphoria often happens towards the end of a bull market.

On the other hand, when the markets are nearing the bottom and small caps start looking cheap, chances are greater that they become even cheaper as panic selling takes them to new lows.
Many times small- and mid-cap stocks may remain completely out of flavour if markets fail to stabilize thereafter much like the pre-2013 period of nearly four years. At this juncture, when the extended bull rally in Indian equities looks difficult, it would be wise to stay with large- and multi-cap funds.

Must read : How to select mutual fund for portfolio ?

In A Nutshell

As said above in the article small-caps and mid-cap mutual funds outperform the rest of the market when the economic outlook is robust and large caps look expensive. But on the other hand, large caps can be relatively stable as against mid- and small-caps. So they would not go up much or fall if fundamentals justify their valuations compared with their mid- and small-cap peers. 

It is time to revisit your portfolio and reassess your asset allocation. Due to the current market rally, if your equity exposure has increased to a great extent than what you had planned or,it’s time to re-balance the portfolio and have a mix of equity and fixed income portfolio

Similarly, you should redeem your money from schemes that have under-performed in the last few years and look out for other schemes and continue investments through SIPs.

I also hope you enjoyed reading the article , it takes time to write articles, request you to please spread the word. A good way to start is to share this page on your social circle using floating social share bar on the left.

Who doesn't like a financial healthy life,In case if you want one, contact me for Financial Planning, please do drop an email to me at vipuls1979@gmail.com. I would be happy to assist you

Mutual Funds & Insurance Related Articles :-
Benefits of SIP
What is SWP in mutual Funds
9 Secrets to choose right mediclaim
How to Plan for your Child Education Planning
How to do Retirement Planning
Best 3 Large Cap Mutual Funds for SIP in 2016  
Best 3 Midcap Mutual Funds for SIP in 2016
Best ELSS Tax Savings Mutual Funds for SIP in 2016
Why you should not buy ULIP
How to Select Mutual Fund for Portfolio
Liquid Funds are better alternative than Savings Bank account
What is FMP in Mutual Funds
Complete Guide on Monthly Income Plans
Complete Guide on Credit Opportunities Fund
How to Save Tax using Equity Linked Savings Scheme
How to Budget Your Money
How Much Insurance Do You Really Need
Why Should you buy Term Insurance Upto 60 Years
5 Must Have Insurance Policies for Women
Disclaimer  :-

The Article is only for information purposes and Vipul Shah (https://investkiyakya.blogspot.com) is not providing any professional/investment advice through it. The article does not constitute or is not intended to constitute an offer to buy or sell, or a solicitation to an offer to buy or sell financial products, units or securities. https://investkiyakya.blogspot.com disclaims warranty of any kind, whether express or implied, as to any matter/content contained in this article, including without limitation the implied warranties of merchantability and fitness for a particular purpose.https://investkiyakya.blogspot.com and its subsidiaries / affiliates / sponsors / trustee or their officers, employees, personnel, directors will not be responsible for any direct/indirect loss or liability incurred by the user as a consequence of his or any other person on his behalf taking any investment decisions based on the contents of this guide. Use of this article is at the user’s own risk. The user must make his own investment decisions based on his specific investment objective and financial position and using such independent advisors as he believes necessary.https://investkiyakya.blogspot.com does not warrant completeness or accuracy of any information published in this guide. All intellectual property rights emerging from this article are and shall remain with https://investkiyakya.blogspot.com. This article is for your personal use and you shall not resell, copy, or redistribute this article , or use it for any commercial purpose. All names and situations depicted in the article are purely fictional and serve the purpose of illustration only. Any resemblance between the illustrations and any persons living or dead is purely coincidental.

Should You Prepay Home Loan - EMI vs SIP

If i had to ask you, What are the three basic necessities of human, I am sure your answer would be Food, Clothing and Shelter (Roti, Kapda & Makaan) but shelter is something which becomes the most prized possession of our life.

Typically in India what i have seen is,as soon as you start earning there is so much of pressure in buying a home. 

Once you do this then EMI is something which becomes a part of your cash flow statement.

After Paying your EMI's for couple of years few of things can 
happen which are mentioned below 
1-> Your Salary Increases 
2-> You get a lump sum from somewhere 
3-> you get married and your spouse is earning 

The most natural thoughts the come to your mind is "Should i make some pre-payment towards my home loan so that my tenure comes down and i am able to repay my home loan as soon as possible"

Must Read : What if your Insurance Company Goes Bankrupt

But Hold on what if i say you can invest in better returns rather then paying off your home loan and this is what exactly we are going to see in this article 

Let me give you an example 
Mr Ravi took a home loan of Rs 50 Lakhs @ 10% for 20 years for an EMI of Rs 48,251
After paying 1 year EMI , Mr Ravi gets married and his wife is also earning Rs 20000 a month, so now they have extra disposable income Rs 20000.
The most natural thought that comes to Ravi's mind is "Should i make some prepayment towards my home loan now that i have Rs 20000 extra or should i invest them somewhere else"

Below are the 2 Scenarios

In Scenario 1 : Ravi decided to invest his extra disposable income Rs 20000/- in mutual funds through SIP for 19 years, I have taken 19 years because 1 year EMI has already been paid 

In Scenario 2 : Ravi could have paid his home loan in 10.25 years while doing a pre-payment of Rs 20000/- each month start from 13th month i.e after 1 year and whatever amount they were paying towards the home loan i.e 48251 + 20000 = Rs 68251 are now available into mutual funds through SIP for 9.75 Years 
9.75 Years because Ravi took a home loan for 20 years and paid off in 10.25 years 
In the below Image ,

1st Column shows the rate of returns expected on investments 
2nd Column Shows the return of SIP of Rs 20000/- if invested for 19 years 
3rd Column shows the return of SIP of Rs 68251 invested for 9.75 years 

Must Read : Complete Guide on Term Insurance

Investment @ 10% return in MF would not make a larger difference but as the rate of returns increase the difference between these 2 sip(s) also increase and we could see that Rs 20000 SIP is doing far more better 
What i want to suggest here is whenever you have some extra income don't just rush into pre-paying your home loan just because you want to finish it off.

Utilize this opportunity whenever you have rise in your income or income from some or the other source, Invest extra income into some avenue which would give you better returns than just paying off your home loan and at the same it would help you build a nice corpus for your future.

Home Loan is the cheapest form of loan available plus it comes with tax benefit.

SIP is the best way to achieve better returns, history suggest that good mutual funds have given returns about 12%-15% on a CAGR basis on past 10-15 years 

What would you do if you come across such a situation or you already in one , will your prepay your home loan or would you invest your surplus into MF through SIP
Hope you got the answer now...

Do let me know your thoughts in comment section....

I also hope you enjoyed reading the article , it takes time to write articles, request you to please spread the word. A good way to start is to share this page on your social circle using floating social share bar on the left.

Who doesn't like a financial healthy life,In case if you want one, contact me for Financial Planning, please do drop an email to me at vipuls1979@gmail.com. I would be happy to assist you

Mutual Funds & Insurance Related Articles :-
Benefits of SIP
What is SWP in mutual Funds
9 Secrets to choose right mediclaim
How to Plan for your Child Education Planning
How to do Retirement Planning
Best 3 Large Cap Mutual Funds for SIP in 2016  
Best 3 Midcap Mutual Funds for SIP in 2016
Best ELSS Tax Savings Mutual Funds for SIP in 2016
Why you should not buy ULIP
How to Select Mutual Fund for Portfolio
Liquid Funds are better alternative than Savings Bank account
What is FMP in Mutual Funds
Complete Guide on Monthly Income Plans
Complete Guide on Credit Opportunities Fund
How to Save Tax using Equity Linked Savings Scheme
How to Budget Your Money
How Much Insurance Do You Really Need
Why Should you buy Term Insurance Upto 60 Years
5 Must Have Insurance Policies for Women
Disclaimer  :-

The Article is only for information purposes and Vipul Shah (https://investkiyakya.blogspot.com) is not providing any professional/investment advice through it. The article does not constitute or is not intended to constitute an offer to buy or sell, or a solicitation to an offer to buy or sell financial products, units or securities. https://investkiyakya.blogspot.com disclaims warranty of any kind, whether express or implied, as to any matter/content contained in this article, including without limitation the implied warranties of merchantability and fitness for a particular purpose.https://investkiyakya.blogspot.com and its subsidiaries / affiliates / sponsors / trustee or their officers, employees, personnel, directors will not be responsible for any direct/indirect loss or liability incurred by the user as a consequence of his or any other person on his behalf taking any investment decisions based on the contents of this guide. Use of this article is at the user’s own risk. The user must make his own investment decisions based on his specific investment objective and financial position and using such independent advisors as he believes necessary.https://investkiyakya.blogspot.com does not warrant completeness or accuracy of any information published in this guide. All intellectual property rights emerging from this article are and shall remain with https://investkiyakya.blogspot.com. This article is for your personal use and you shall not resell, copy, or redistribute this article , or use it for any commercial purpose. All names and situations depicted in the article are purely fictional and serve the purpose of illustration only. Any resemblance between the illustrations and any persons living or dead is purely coincidental.