Investing vs Loan Repayment | 2022 | CA Rachana Ranade
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- čas přidán 13. 07. 2024
- "People who find themselves with extra cash can face a dilemma. Should they use the money to pay off-or at least, substantially pay down-that pile of debt they’ve accumulated, or is it more advantageous to put the money to work in investments that will grow for the future? Either choice can make sense, depending on the circumstances.
In this video we have discussed, how to understand if we should prepay the loan or we should invest the excess amount in the asset class.
In this video we have also discussed which asset class we should invest in.
Additionally, we will try to understand how to compute the amount of money we are going to save.
So to understand how to effectively decide between prepaying debt or investing, stay tuned till the end of the video. "
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What is covered?
00:00 - Start
00:30 - Introduction
02:12 - Things to consider before making decision of prepaying loan or investing
05:18 - Exception to the rule of prepaying fast or investing in market
06:53 - Numerical example to understand the amount of saving
16:15 - Conclusion
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#RachanaRanade #loanrepayment #investing
About the prepayment penalty short description with link
economictimes.indiatimes.com/wealth/personal-finance-news/rbi-restricts-banks-from-charging-prepayment-penalty-on-home-loans/articleshow/12711108.cms
According to the RBI rule, banks are not allowed to charge you prepayment penalties on home loans.
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Being a chartered accountant, in my opinion, it's always better to knock off your loan first. It's very fancy to say that you can get 15% return from index and all but it doesn't work in that way. There are no return in straight line and you may face 2 to 3 years without having return while on the other hand you are paying hight interest in initial years. Every decision should not be taken solely based on calculations only. It's good to have a good sleep if your leverage is controlled. It's my opinion only, you may or may not agree.
I agree.. knock off the loan 😅
Spot on
YOU ARE RIGHT AND EVERY BODY DO NOT KNOW ABOUT INDEX
15% is also a pre-tax return, post tax returns would be lower especially in the 30% bracket. That woule be the right apples to apples comparision.
very true. the returns are substantial after atleast 5 years of investing in etf. until then its always a tilt between marginal gain and loss . repaying loan also increases the chances of taking another loan for another asset while etf investing won't get you a loan.
The current market crash is proof that 99% of People had no Idea what they were doing. People Bought anything, made money and became overnight gurus with stocks, options, NFT’S, cryptos etc. Nothing is 100% certain in any market, only thing you can control is your risk.
A lot of people learn from mistakes. No shame in that. Most Traders are not economists, yes there will be anxiety, but this is one of the best learning experience for this Generation and that is why I have my funds well diversified with the help of a financial advisor TERESA JENSEN WHITE.
You can glance her name up on the internet and verify her yourself. she has years of financial market experience.
I'm surprised you know her _ Heard many good recommendations about TERESA JENSEN WHITE, and her profitable strategies by some brokers in a seminar and other platforms, I think she's the real deal for people to talk good about her, I will give her a trial and see how it goes then.,..
I had preferred to close home loan and ignore all this maths. I have definitely peace of mind. :)
@whatsap9593 Bro, get lost... :D
Worst worst 😂
Good
Same here.
People won't understand peace of mind until they get rid of the loan
Nice decision
Making money is not the same as keeping it there is a reason why investments aren't well taught in schools, the examples you gave are well stationed, the market crisis gave me my first millions, people shy away from hard times, I embrace them.. well at least my advisor does lol.,
@Billie Heeter Ury Not at all, having monitor edge my portfolio performance which has made a jaw dropping $473k from just the past two quarters alone, I have learned why experienced traders make enormous returns from the seemingly unknown market. I must say it's the boldest decision I've taken since recently
@Raul Romero
The adviser I'm in touch with is ' Gary Craig Raymond ' He works with Merrill, Pierce, Smith incorporated and interviewed on CNBC Television. You can use something else, for me his strategy works hence my result. He provides entry and exit point for the securities I focus on
Mistake 1: You missed taxes on the 47 lakhs. Even if it is invested for longer duration, LTCG has to be calculated and reduced from the 47 lakhs.
Mistake 2: when dividend payout and taxes on dividend is not even considered.( I don't know, whether you are considering 14% returns including dividend)
Mistake 3: current home loan interest rate in indian bank is 8.8% (Already RBI increased interest rate thrice without publicity)
Mistake 4: ETF & MF returns are subject to market risk, so you used only best returns rate for the calculation. You must project 3rd option with worst returns on ETF & MF.
my way to handle this is don't buy property until you have 40% cash with you. repay the loan within 5 years or atleast a large chunk of principal. don't invest on stocks sip etc. always invest on land like sites in outskirts of city, farm land n earn tax free income from farm land
I have 90% but I will only pay 50% as DP and Invest the remaining in MFs for the loan term.
The problem for lot of people is to find the right investment carriers that will give the 10-15% returns. Hence in my case also I chose to put all excess in home loan prepayment.
I'm 58 and my wife and I are VERY worried about our future, gas and food prices rising daily. We have had our savings dwindle with the cost of living into the stratosphere, we are finding it impossible to replace it. We can get by, but cant seem to get ahead. My condolences to anyone retiring in this crisis, 40years nonstop just for a crooked system to take all you worked for
I think it's especially difficult for retirees and near retirees, I know to focus on the long term but the anxiety when you're supposed to be retiring in 3-5 years is exhausting.
I feel your pain mate, as a fellow retiree I’d suggest you look into getting loan from "World Quest Finance, I am keep buying stocks every time they go down 2% - 5% making my average lower and lower each time.. I just spend $1000 today on one of the stocks that I own and my average now is $1.39 and current price of stock is $1.33 … Now, I just wait and if it goes more down I’ll buy more
@@yarboroughbrad3082 While saving for a retirement is an important topic, it’s at least as important as what comes next: Your plan of action once you enter retirement. No matter how well you save during the accumulation phase, it’s critical to plan how you convert those assets to income.
@@ishaandevaj5587 Every individual needs funds to grow their business. For you to be a successful entrepreneur, you need to get extra money to boost your business. Getting a loan will allow you to make an extra move to expand your business. thanks for sharing
I realized something wicked was on the way 5 years ago , but I never imagined it would be so catastrophic I worked in a big hospital for 28 years , the BOD stripped our hospital to bare-bones and cut my hours drastically. Fk this, I felt the longer I stayed in HawAii or anywhere in the US , I was digging a deeper hole. my cobra payment was $600 a month. Luckily I was 62 and could retire early and then I moved overseas. Aloha
Relying on possibility of equity returns can be fatal. As returns from equity is probable profit but loan interest is certain liability. Moreover, we should not assume that income will increase continuously and the expenses will not. This is just my perspective to repay as much principle as possible in the initial 5-7 years when the maximum interest amount is due to be paid. After this tenure, spare amount investment in equity would be a good proposition.
Thank you so much for sharing your expert views. The "peace of mind" factor is rarely considered by experts.
Investing may or may not help you to get return. But loan repayment will certainly help you reduce the loan amount
If the loan interest rate is above 10% simple go ahead and clear loan don't listen to anyone.. it's not about returns it's all about peace of mind
Thanks ma'am 😊
Highly informative and well thought 😊
Actually in option 2, the difference is considerably(10%) more. Because over 15 year period through tax benefit on additional interest, he could have afforded to start an sip of 1500 per month for 15 years(2.7L, but yes tax benefits are also having the same compounding effect cannot be linear, but for simplicity). If he invest it in same index fund at 14% for 15 years. At the end of it, that 2.7L would have grown to 9L.
So basically with option 2, it is 41.8L + 6.3L = 48L.
Very nice presentation Rachana ji … it’s useful also . I am joining as an investor for ur class . I am also a lawyer and expert in taxation and laws . Very much impressed abt your efforts 🎉🙏🏻
I am in mid 20s and your videos really cleared my options towards my future investments. Thank you for effort for delivering this quality content to all peoples, Can't get this quality of advice from any other place.
The challenge is cash flow.. Is there a guarantee that a good cash flow will continue for foreseeable future.. In that case, it's better to invest the money rather than paying debt.. But if there is risk to cash flow, priority should be given for loan payment.. Statistically last couple of centuries, most of the business busted due to debt which they were not able to serve during bad times..
In the first option the return will be further reduced because by the time the first 15 years pass the market would have reached a new high. Index stocks would be very costly to begin with.
Acche stocks choose kiya hai... Wow ... Your Love towards stocks market make us go crazy, students love towards subject depends on the teachers love towards the subject
क्या बात है दीदी. मस्त कंटेंट आणि सादरीकरण. उद्या live किती वाजता असाल?
Loan on fixed asset is always better than investment in other option.... U have not taken into account appreciation of the asset (in this case House ). After 15 years value of the house will also increase ... Lets say after 15 years house valuation has increased to 1.5cr .... In india 200% increase in house valuation after 15years is very likely... In a good Neighbor.... So effectively taking a home loan or any kindy of property loan is a win win situation
What is not being factored into all of these options and calculations is Risk - Life comes at you in a thousand ways...always better to become Debt free at the earliest possible timeframe , and is one of quickest way to build wealth afterward provided you make wise investment decisions.
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@chandrakant Soni.. you better go and beg on streets rather fooling people
Repayment of loan for sure,nothing better than being debt free for a peaceful life Teacher Ji.
I needed it at this point of time. Thanks for making this video. Bless you
I was looking for this type of video as it was difficult for me to actually analyze these many angles..
Really nice explanation in easiest way.
Now I can check my case by my own.😀
Thank you very much Mam!!
This sounds soo got damn foolish mam🥲🥲🥲🥲 don't give us false hopes looking at the past .. inflation has increased more than people's salary all the time🥲 if salry increased inflation has increased twice there is no way we would be able to effectively reduce years on loan🥲🥲🥲 plzz give us better option don't give us false hopes
Just want to mention - hope everyone is also considering the rent you save or gain from the purchase. The property valuation is also a point to consider, some properties may get a 2X valuation by 7 to 12 years from purchase.
Thanks a lot for making this video. Now it is easy to take a decision for whether we should go with repayment of loans or investing. As my age is below 30 and I can be invested for a longer duration I will opt for Investing rather than paying loans beforehand.
The same doubt was jumping in my mind for quite some time now. Thankyou for beautifully clarifying it to me. 😇
CA Rachana has illustrated the comparison based on "absolute interest". Impact of LTCG/STCG on investment returns was not considered in the discussion.
An alternate viewpoint is to take time value of money into account i.e. look at XIRR of combined EMI & SIP installments + tax saving every year + LTCG/STCG at the end.
Put all the projected cashflows of EMI, SIP, Tax Saving, LTCG etc. into a spread sheet and calculate the estimated XIRR. Think of the whole scheme of things as a "single investment product" with incoming and outgoing cashflows. If XIRR is negative, it's unlikely the scheme will be beneficial.
Assume Home Loan interest rate of 10% & SIP return rate of 12% to keep some margin of error, in case you go wrong on estimating interest rates.
I was going through the same confusion since last few days. But this video as answer my all queries. Thanks a ton CA Rachana Ranade. Keep the grt work going. All the best 👍
Amazing Teacher and have understood how to analyse stocks fundamentally
Thank you 😊
Hi Rachana, I love your all videos, not only English but Marathi also.
You explained very well and in detail the calculations.
I would like to learn about the
other scenario.
what if we repay lump sum amount as home loan part payment per year? also if made a part payment in first 5 years instead of investing it in equity or MF. what would be result? please guide.
I was just thinking about these topic.. Thanks for providing making this one..
Dono hi options situation ke hisab se bahatarin hai
Thank you mam
always option2. you'll get benefits of additional returns for that 5yrs too. dont forget considering taxation of any gains from investments
In option 2 long term capital gain tax also needs to be consider
Thanks for valuable guidance.
you should have shown comparisons with 12% return too. 14% is way too high return which is practically rare.
Increase in the intrest rate will lead to increase in time period for the repayment of loan.. and further those calculation are not considered in option2..
Good stuff!! Very logical
Very perfectly done. Thanks mam
Fundamental flaw is 14% interest.. it’s gamble rate .. try to see reducing by 1% nd then will see the game..
Directly calculating the 30% tax savings on interest paid is not the ideal option because there is a 2 lakh maximum exception and most interest paid in a single year exceeds 2 lakhs. We do not receive the entire interest payment exemption. 15:25
Correct.
Thanks for the clear explanation
Mam aap jab bolna start karte he to usme hi itni ful energy dikhai deti h ke wo sher raftar kiyu nahi pakdega.....thanks k upar wale ne hamari life cheng karne k liye aap ko banaya
Your video intro's are full of humour... and good content.
Hi. The advice was good. I just want to know in option 2 how Corpus size and absolute returns calculated pls
If the home is under construction , what could be the action as you never know builder is going to finish work at given time . In this case paying loan to bank is also not good option as if you pay to bank n building is not ready then difficult n you are emty with your pocket.
Actually, being a CA, She should have also shown LTCG tax to be paid for 15 yrs investment and then shown the NET gain. she showed the tax saved with home loan interest though.
Hello Mam, it was really good comparison...will it be possible to provide the comparision of option 1 and 2 in attachment of this video with Excels. I want to check with diff raye of return
Very well explained
How to beat inflation with investment between life needs focous Goal just Howcan balance our Goal
In case of home loan also consider the tax benefit you get on interest payment. So if two people have taken the loan and availing 4Lc of tax exemption. This could save upto 1.2Lc per annum (30% tax bracket)
I was just looking for what to do with my home loan as the interest rates have hiked. And I saw your video got uploaded just that moment. My home loan is only aged 1 year. So I'm going to knock off as much of it as I can right now. Will reanalyze once 5 years are up or half of the principal amount is repayed, whichever comes first.
@jubin: why u came to this conclusion...option 2 is also better option. .trying to understand if u got any other idea or understanding
@@amolsg7 My loan is actually a mortgage loan at floating interest rate, which is at 10.2% interest as of now. Even a 12% return in mutual funds is just a minimal gain compared to that interest rate. Hence I'm choosing to go for prepayment until half of my principal is paid (which I plan to do in the next 3 years). Post that, even the 10.2 interest would be less than the principal deduction of my monthly emi, at which point I can use my excess income for long term goals. That's my chain of thought. Also seeing my debt go down faster helps me sleep better.
Very informative video 👌🏻👌🏻. Please do more and more:)
Excellent video madam..and it's always better to clear off credit card, personal loans
Hi, Can you please explain us about Form 15G, Form 15H for TDS deduction of more than 5K divident
Thanks for the insightful video! It shed light on the nitty-gritty of loan repayment vs. investment, including the often-overlooked factor of changes in home loan interest rates. Once again, Thank you, @CARachanaRanade Jee !
Thank you Rachna that was a great example. My head is still reeling under all those maths. Can make a video on the same example with a Personal Loan or Car Loan instead of Home loan.
Very good analysis :) Thanks a ton Mam :)
In fd you can compound your money, then repaying home loan. Please check.
Looking forward for more such bifurcated videos , layman’s point of view , thanks 😊
Please suggest mutual funds which give returns of around 14% per year.this will be very much useful.
Hi Rachana ji,
Could you let us know best way to invest in goal oriented direct mutual fund and how to track on MF(current Active SIP) performance. Is ET Money good choice?
exactly hat i wanted.. searching last 6 months..thanku appreciate ur lear explanation
More confusing. 10% Of Yearly EMI have to prepay after 5-7 year's of your housing loan. Afterwards we can invest in dynamic bond's instead of nifty ETF.
Convincing thought .....nicely explained.....you mesmerize everyone thro finlogic....great madam keep it up. Post more such interesting videos
Thank you 😊
Hi Madam,
Is the income tax component for the earning from the stocks not important??
very helpful information 👌
Fantastic explanation!!
Thank you 😊
Whether the TAX benefit is calculated only for 1 year ? i.e. 2 lakhs on interest, i assume tax of 2 lakh savings should be taken in account for the entire tenure.... let me know if am i missing something here
1. FD returns post taxes will be close to 4%
2. If NBFC is charging high interest then loan transfer or negotiating for lower interest rate are also some options
Hello Ma'am,
In option 2, following assumptions are made which may not be true over period of 15 years of time.
1. Assumption is investment in index fund
2. Rate of return on investment is 14% throughout 15 years.
Also following is not considered in calculations in option 1.
Persons investment after loan payout within 5_8 years also increases..that profit is missing in gain calculation in option 1
IIFL gold loan vs SBI Gold loan... How to invest, where to invest... Else...
Also i understand that home cannot be faster liquidity so i prefer investment give faster liquidity
I am doing option 2 & I am loving it 💰💰💰💰💰💰💰
If Equity and mutual funds yields better returns than loan closure, why do banks into loan business. They can directly invest in them. Subject to market risk😂
In option 2, I didn't get why we substracted 9.08 Lacs twice, if after 5 years, we are left with O/S balance as 43,45,000, then at increased rate (8.5%), keeping the EMI constant as 40,280; basically our tenure should increase to pay off the extra interest. I calculated it online, if we keep the same EMI and rate is increased, we have to pay the EMI for around 2 years and 4 months more, then we have to pay additional 10.5 Lacs (approx.). Shouldn't only this amount be substracted in option 2?
This is the best video on youtube. Only missing thing madam is age factor pl consider that and let us know age 30, 40,45,50. Also gome loan give 89c benefit which u missed.
What i know that you haven't considered the penalty the bank charges for early closing of the loan , kindly consider that also in your calculation in 1st scenario
Great! Power of mathematics
Hi Mam its a very informative video. I have tried the second option with my vehicle loan. One addition from my end would be you have considered the tax savings but tax out flow from the gains incurred from investing in MF's, Fd's etc. should be considered for arriving at net cash flow.
Thanks Rachana. This is very clear explaination and my confusion is resolved
Thanks 👍
Amazing explanation...
Thank you 😊
What if market behaves sideways for next 10 years and index funds won’t give much returns.
Why don’t u add another option to counter this to check regularly if one is making more profit in reality and adjust whether to use the funds for loan principal repayment or still keep investing. That will make this video fool proof ❤
The last sentence is important.
Awesome as always👍
Thank you 😊
Rachana mam, can you please explain to us about Form 15G, 15H .. If getting divident more than 5K should I need to apply anything. ?
Debt is debt … home loan at 9% is effectively 10% plus return even in stock market. 9% you have to pay surely, but 10% is nor certain
Hello Ma'am, could you please make video on SBI term loan vs SBI Max gain home loan.
Mam top 20 stock per video banao
Jo portfolio mai hone hi chahiye
Large,mid, small cap
What about the floating loan interest rates if it changes like this we may end up 12-13% for home loan alone. In that case it is better to make prepayment as and when possible is a viable
Good tutorial. Can you please share the link for excel sheet
Hye Rachna, suppose I have a decent lumpsump amount, should I invest it in balanced mf and use swp for home loan emi? Please suggest
To pay the additional 9 Lacs there's gonna be more interest paid on that too. The Option 2 would then decrease further.
What is your view on Lesha industries and Bhatia communications? Please suggest for investment point of view
Highly helpful